How to rebuild credit in Canada
Whether you made bad financial decisions or have encountered some financial hardship, you can work on rebuilding your credit history and aim to have a good credit rating again. Having good credit rating is extremely important for borrowing money. The better your credit score, the better off you are at getting approved for your loan and to get a good interest rate.
Some reasons that your credit score could have been negatively affected are
- Not paying the minimum amount due on your loans
- Late payments
- Missing payments
- Not making payments
- Maxing out your credit ( with too much credit)
- Referred to Collection agency
Having a bad credit score can lead you to not getting approved for a loan and/or you may not get a good interest rate on your loan.
Working to Rebuild your Credit
These are some options you can consider to start with rebuilding your credit rating.
Secured Credit Card – these cards will require that you have a deposit with the card lender, this will be a guarantee. Typically the deposit is the same amount on the limit of the card. When you are able to show that you can pay the credit card balance on time, and you have built up a good stable payment history, you can see about having the security requirement be removed. Then the deposit would be returned.
At Least Make the Minimum Payments (On Time) – Ideally you want to be able to pay your credit card in full every month. Paying it in full helps to avoid any interest charges. When you are not able to pay the card fully, at least pay the minimum amount that is due, and pay it on time. Having late payments can harm your score.
Too Many Credit Applications/Loans – If you are making too many credit applications, this can also work against your credit score, and it can harm your score. Ideally, you should try to use less than 35% of the credit that is available to you. Avoid filling out too many credit applications, because with each application, your credit is checked, and this can affect your score.
Review all of your Credit Statements – Being in debt, this especially means that you need to make sure that you are diligent about reviewing your statements, and report any mistakes that you notice on your statements.
Get a Credit Report – you should review your credit report at least once per year. Review it for any errors and look for any sign of identity theft. When requesting a report, try getting it 6 months apart from one agency to the other (Equifax and TransUnion) this can help with detecting any problems sooner, rather than getting reports from both at the same time.
Note that prepaid credit card do not help with rebuilding your credit rating as these are not tracked by credit agencies.
Rebuilding your credit will take time as you will need to establish a good stable history.
