How to Repair Your Bad Credit Score

By Randall Orser | Budget

A solid credit score is something that you can create for yourself and it will be very beneficial to your financial health.  It helps you to get better rates for car loans, mortgages, and any type of loan or credit. To keep your good credit rating it is important to make payments on time and keep up to date on all your credit related transactions.

However sudden emergencies or letting your spending get out of hand can affect your finances for months or years on end.  You may have had to declare bankruptcy or arrange a consumer proposal and you will then find that repairing your credit score can very frustrating and time consuming.

CANADIAN CREDIT SCORES range as follows:                                                                                          300-560 POOR   560-660 FAIR  660-725 GOOD  725-760 VERY GOOD  760-900 EXCELLENT

Causes of bad credit include racking up consumer debt due to unpaid credit card bills and various types of personal loans and defaulting on loan payments.  Whatever the cause of your credit problems most of the information goes onto your credit report where it can stay for years.  With every bad transaction your credit score will drop even lower.

How to improve bad credit - bad credit will not ruin your life forever and it is possible to repair it.  If your credit is damaged severely (under 500) it will take time and patience to repair it.  Here are some things that you can do:

Always pay your bills on time and take care of your other debts - keeping up with your bills is very important, paying utilities on time will not affect your score but unpaid bills could be turned over to collections.  Credit card bills paid and unpaid will be listed on your credit report and sometimes even cellphone companies will report unpaid bills to the credit bureau so it is important to at least make the required minimum payment on your credit cards.

Taking care of your larger debts such as car loans, mortgages or any other debts pertaining to your assets is very important.  Defaulting on these debts can result in damage to your credit rating but it can also lead to these assets being seized.  If you are unable to make your payments you should not just ignore them but contact your lenders immediately to negotiate a longer payment schedule.  This is always preferable to your lender than you declaring bankruptcy as depending on how high they are in the food chain they might not get paid at all as banks always get paid first.  Also legal processes are both time consuming and expensive so they usually are willing to negotiate to avoid this.

Do not apply for too many credit products - While you are repairing your credit score it is not a good idea to apply for more credit as inquires as to your credit rating will reduce your score. 

Consider getting a secured credit card - If your credit is poor you will probably not qualify for a regular credit card, and a secured credit card can be a good alternative.  Unlike a regular credit card a secured card requires you to pay a security deposit usually equal to your desired credit limit in case your default.  The longer you go without missing a payment, the more your credit score will improve.  Usually after a couple of years of responsible usage you will be able to apply for a regular credit card and your safety deposit will be refunded.

Create a budget and start saving - Budgeting is important regardless of your credit score but it is more important when you are trying to rebuild your credit score.  Cutting down on spending will help you to save money that you can use to pay your debts or to create a fund for unexpected expenses to help you to stop getting into trouble again.

Beware if bad credit repair companies - Do not fall for bad credit repair companies who promise to repair your credit they are usually scam artists.  The credit bureaus will not change the information they have about you until they are legally allowed to do so and no amount of money paid will change that.   The only way that you can change your credit information with the bureaus is if you report it as being incorrect.  

Repairing your bad credit can take a lot of time so it is important to be patient. Using your hard earned money to pay off as much as you can is much better than declaring bankruptcy but even if you have to do that your score is not irreparable.  It is important to be responsible with the money that you do have and pay your debts first and have fun later, not very inspiring but important to stick by to have a successful financial future.

From an article by Bryan Daly

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President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.