Credit Counselling Victoria - PDSC Trustee Site

2014-05-22 17:24:25

Rebuilding Your Credit

After suffering financial difficulties it is important to start rebuilding your credit.

What is a credit score?

Your credit score is what new lenders check before they approve a loan.  It is provided by a credit reporting agency who collect information on your repayment history from your previous lenders.  Good repayment histories lead to high scores and the ability to borrow more.  Poor histories, including late payments, collections and consumer proposals lower your score and can result in a loan being refused.

In Canada there are two major credit reporting agencies: Equifax and Trans Union Canada.   You can request your credit score at:

Equifax:
http://www.equifax.com/EFX_Canada/consumer_information_centre/ownreport_e.html

Trans Union Canada:
http://www.transunion.ca/ca/personal/creditreport/consumerdisclosure_en.page

How do you go about rebuilding your credit?

Negative information will stay on your credit report for varying amounts of time dependent on the Province you live in and the type of event.  In BC no information can be reported longer than 6 years.   After this time the bad information will no longer be reported, but if it hasn’t been replaced by positive creditor reports then you will simply have no credit, which is equally difficult. If you want a positive score you have to be actively rebuilding your credit.

In order to do this you must have at least one responsibly managed credit account in order to start rebuilding your credit score.

A secured credit card is an excellent option.  Some options available in Canada can be seen here:

http://creditcards.redflagdeals.com/t/Prepaid-Secure-Charge-Cards/

A secured credit card is a credit card on which you put a secured deposit against the credit limit.  It has all the benefits of a credit card with the security of a debit. They often have higher interests rates and annual fees, but they are a great way to begin rebuilding your credit when you cannot get approved elsewhere.  If managed well, with payments made on time the company will often upgrade you to an unsecured credit card within 12 months.  Even if they don’t there is a possibility you could apply and be approved for an unsecured card elsewhere. As long as you do not default on your payments you will receive your full deposit back when you cancel the card or are upgraded.

How to manage rebuilding your credit without getting into debt again

A secured credit card won’t do you any good if you fall back into old patterns and create more debt than you can handle.  A good way to manage your card is to use it only for one or two specific things.  Buy your groceries on it every month, or your car insurance, or your phone bill.

Keep track of what you are spending on your card and put that amount of money aside so that when the bill comes you can pay it in full. This way you are rebuilding your credit without racking up debt you cannot pay.

You can also call your card company to see which practices will result in a higher score being reported to the bureaus.  Different company’s have slightly different rating systems.  Some will give a higher score to a fully paid off card, whereas others will give a higher score to a card that leaves a small amount unpaid until the next bill. Minimum payments are never a good idea when they can be avoided, but leaving a very small portion owing still on your card is not necessarily a problem when rebuilding your credit.