Having your application rejected by a potential landlord or a financial institution can be a frightening moment. For those unaware, bad credit can affect every aspect of your life; it reduces your chances of getting a mortgage, buying a new car, and even getting a job. However, many people don’t know their alternatives when they have poor credit and how to rectify the situation, which causes unnecessary anxiety.
In Canada, credit scores are generated by two agencies: Equifax and TransUnion. Your score is calculated based on how you use credit. Credit goes bad when:
- you miss credit card payments
- you’re late on a loan payment
- you consistently use more than 30% of your available credit limit
- you apply for too many credit cards too quickly
Your payment history and any outstanding debt play a huge role in determining your credit score. So, how can you repair it and get that mortgage, apartment, or car that you need?
What’s great about these tips is that you can take matters into your own hands and fix your credit yourself! Here’s what you need to do:
#1: Get a Copy of Your Credit Report
Acquiring your full report from both agencies will give you a detailed picture of your score. Requesting your credit score does not affect it because it’s a soft inquiry, and you’re entitled to a free copy every year. As you review your report, it will detail the cause of your poor credit, so you’ll know where to target your attention for making improvements. Your credit report also permits you to view your creditors’ comments regarding your payments and spending.
If you notice mistakes on your credit report, you can dispute them.
It’s crucial to mention that there is a seven-year rule in the credit reporting business. It entails that after seven years, credit reporting agencies must stop reporting the majority of negative information. The exceptions that will remain on your report beyond seven years are:
- Chapter 7 bankruptcy filings
- Money owed to the government
Keep in mind that while your credit report won’t show your debt or charge-off, it doesn’t mean they have disappeared, and you no longer have to pay them back. They still exist until they’re fully paid.
If you want to know more, refer to the Fair Credit Reporting Act.
#2: Dispute Any Errors on Your Credit Card
Ideally, dispute the errors through regular mail since it’s smart to have a paper trail. Send your disputes by certified mail with a return receipt, so you have a record on file of when you disputed it. If you conduct the dispute online, take and save screenshots. Credit card reports may have errors, such as a late payment that was made to an account that isn’t yours. You can also dispute this directly with the bank or business where the charge was made.
#3: Get a Credit Card if You Don’t Have One
People who have poor credit often think it’s in their best interest to avoid applying for a new credit card altogether, but, in reality, it’s actually a bad idea to close old credit card accounts because of bad credit. An account’s age affects your credit score. Without credit, you won’t have a credit history, and lenders cannot assess whether or not you’re a risk if they provide you with funds.
When you do get a card, avoid subprime credit cards with high-interest rates and fees. Instead, look for a card that is specifically for people with poor credit. Consider a retail store card, as they will often be more forgiving. If neither of those work, try a secured credit card, which means you pay a deposit that relates to your credit limit. Many can be converted to unsecured cards after a year, so this can be a great way to get a major credit card.
#4: Avoid Closing Accounts
As we mentioned earlier, accounts are like wine; they improve with age, and in this case, they positively affect your credit score. It’s a myth that closed accounts don’t show up on your report. Additionally, if the account was in good standing in the past, lenders will look at this favourably. If you do need to close accounts, choose ones you opened more recently.
#5: Create a Budget and Repayment Plan for Your Debt
Low credit and debt are not always a result of bad habits, but it certainly can be. These days, creating a budget is simple and easy. All you need is a spreadsheet, determination, persistence, and you’re ready to go! As you budget, make sure you choose a good time each week to enter your costs into the spreadsheet, such as Saturday morning before your weekend begins or Sunday evening when everyone is relaxing in front of the TV and not distracting you. Leave notes in your personal planner or on the fridge to remind yourself to track your budgeting each week because it can get out of hand quickly; this is where you’ll need your determination and persistence.
When you’re shopping, only put items that you can afford on your credit card. This will ensure that you can pay off by the next statement date. We often like to indulge ourselves by merely browsing through the items we long to buy in the store’s shelves or display windows, promising that we’ll be back to purchase them. But sometimes, we cave and decide to treat ourselves for that item we yearn for, even if it’s an unnecessary expense at the moment. Try to resist the temptation by limiting visits to your favourite stores and websites. However, if you need something outside of your budget, a small personal loan may be a better option, as it will have lower interest rates. Remember that you need to get your card below 30% of your credit limit before you can apply.
#6: Tackle Past Due Accounts in an Orderly Manner
Start with the accounts that are closest to being charged-off or sent to collections. If you can’t cover the amount, call them and make arrangements. Creditors would rather get your money than not at all, and they may be willing to waive late penalties or split the amount depending on your case. Then, move on to settling charge-offs—ideally in full—but you can sometimes negotiate here, as well. In some cases, companies will delete the negative item from your credit report if you pay in full, although this is relatively rare.
Another way is to consolidate your debt so you can make only one monthly payment without having to worry about interest. Bad credit loans in Canada are reasonably easy to get, and you can use that to pay off the old debt.
#7: Apply to Lend for All
Our advisors aim to provide the best customer service, which is why Lend for All uses an AI platform. It increases everyone’s chance of loan application approval. We work with reputable lenders that provide funding for a variety of loans, from debt consolidation to bad credit to mortgages. Apply today, or contact us toll-free at 1-800-532-4505.