How to restore your credit

Article by Lola Augustine Brown, Canadian Living

“If a bad credit rating has been holding you back, it is time to get a handle on it. “A poor credit rating can impact your access to credit and the interest rate that you might receive,” says Pat White, executive director of Credit Counseling Canada. “It may also impact some types of employment and opportunities for renting housing.”

But with a little dedication, time and perseverance, you can get things back on track. Here’s how to proceed if you’re ready to restore your credit rating:

1. Make sure your credit report is correct
If you’ve been a victim of identity theft or there’s been a computer glitch somewhere, you may not be to blame for your horrible credit score. Get a copy of your credit report, just to make sure. In Canada, there are two credit reporting agencies (Equifax Canada and Trans Union of Canada) and both will send you a free copy of the credit report that they have on you.

“It’s important for you to check your credit report once a year to make certain that the information contained in your report is accurate,” says White. “Mistakes can be made and identify theft may impact you. You want to ensure that what’s in your report is accurate, even if it may be negative.”

Correct any errors
If you do find inaccuracies, you need to complete a form to get them corrected, and there are instructions as to how to do this on both companies’ websites.

“The agency will check on the item in question and either make a correction once they hear from the source or keep the information the same,” says White. “Or you can check with the financial institution and ask them to correct the information. In either case, you can file a statement that will appear on your report to explain your circumstances.”

2. Be good with your credit cards
If the fault is yours, then you’re going to need to work on improving your financial habits and dig your credit score out of the ditch. This involves paying all your bills, credit cards and utilities on time, and retaining the same residential address and job as much as possible, says White.

If you do skip a payment, get in touch with your financial institution and request that they take any late fees off your account, as these show up as a blemish on your report.

If you can’t actually get any more credit, it can be hard to build your rating back up.

“In the cases where your credit report has been impacted such as bankruptcy, a consumer proposal or a voluntary debt repayment program – you may apply for a secure credit card with a financial institution,” says White.

“This means depositing a lump sum of money which the financial institution uses as security against you not paying the your debt. By using the secured card and paying it off in full each month, you will gradually see an improvement in your rating,” advises White.

3. Stop making credit mistakes
There are several ways that you can put a ding in your credit rating, although they might not be that obvious. For a start, you shouldn’t carry too high a balance on your credit card; White says that the Financial Consumer Agency of Canada recommends keeping a maximum balance between 35-50 per cent of your credit limit.

Also to be avoided is having too many credit or store cards, even if you don’t use them and carry a zero balance on them; they give you the potential to get in a real mess and lenders can see that.

Having said that, don’t go cancelling all your credit cards at once, as it can give the appearance that you are in financial trouble. Leave a couple of weeks between shutting accounts to be safe. You should also limit the amount of credit you apply for, as every time you apply for a new source, your credit rating takes a hit — though this doesn’t apply if you are shopping around for loans for the same purpose, such as buying a house or a car.

If you do all of the above, remember to check your credit rating annually and maintain an excellent history of paying bills on time, this will go a long way to ensuring a positive financial future, says White.”

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