5 Steps How to Rebuild Your Credit Score

5 Steps How to Rebuild Your Credit Score

Your past money-related mistakes have an impact on your credit score and could hamper your chances of qualifying for loans or getting reasonable interest rates. The good news is that with time and perseverance, it’s possible to rebuild your credit score in Canada. Many people often harm their credit score and history without knowing it.

Suppose you’ve used more than 50% of your current credit card limit, made several delayed payments, did not pay the minimum balance on your existing debts, or have already maxed out your credit. These seemingly inconsequential decisions have an adverse impact on your credit score. Generally, there are different ways you may be harming your credit history – but you can still salvage it. Consult with experienced finance and debt management expert from York Credit Services. This company has been offering reliable debt management and debt consolidation advice and helping Canadians create reliable financial and debt management plans or negotiate debt relief.

Step 1: Check Your Credit Report

The initial step in repairing bad credit involves determining the specific areas that need improvement, and acquiring a copy of your credit report is the best way to know your credit history and score. Have you made several late payments or missed payments lately? Have you filed for bankruptcy in recent years? Is your overall data utilization too high? These are some of the factors that could negatively affect your credit score. Acquiring a copy of your credit report allows you to analyze your credit history over a specific period and identify what went wrong. Once you identify the main reason behind your bad credit score, you will have all the information you need to take the right action.

It is also imperative to analyze your credit report for any possible errors or even fraudulent accounts. These errors can affect your credit score and history negatively. Once you discover inaccuracies in your credit report, notify your creditor so that they can help you address these errors and revise your debt repayment data when reporting. Keep in mind that you are entitled to a free copy of a credit report from the major credit bureaus (TransUnion and Equifax) once every year. Every credit bureau is likely to have different information about your credit history, and it is a good idea to get a copy of the report from the two agencies.Step 2: Bring Your Accounts Up To Date and Pay Down Debts

Your debt repayment history is the most significant factor impacting your overall quality score. If you have been behind on your debt payments or you have not been making the expected payment on time, your credit situation may not improve much unless you ensure your accounts are up-to-date. In case you are already in a challenging financial situation and cannot afford to bring all your delinquent accounts up-to-date, contact your creditors to find out if you can successfully negotiate a payment arrangement that could work with your budget. If no such arrangement is achieved, you may want to consult with an accredited, non-profit credit counsellor who can help you create a well-thought-out plan to bring your debt accounts up-to-date and successfully repay your debt.

Paying down your debts is an effective way to improve your overall credit score. The total amount of debt owing in relation to your available credit (commonly referred to as credit utilization) is also an essential factor in your credit history and score. Suppose your current credit limit is $10,000 and you have used $7,500. In that case, your credit utilization is estimated to be at 75%. Using a large chunk of your available credit can have a negative effect on your credit score. The most effective way to address this issue is to pay much of your debt and bring your credit utilization down to either 50% or less.

Step 3: Rebuild Credit with a Secured Credit Card

Now that you have developed a well-thought-out plan to address your debts and ensure your payments are up to date, build a consistent debt payment history. A crucial part of building a commendable credit score and history is to successfully demonstrate that you can repay the money you borrow and prove to creditors that you can manage your debt responsibly. An effective way to rebuild your credit is using a secured credit card. Generally, a secured credit card works like other unsecured credit cards in that you will have access to credit services, and your payment data will be reported to the credit bureaus each month. However, unlike most credit cards, you will be required to provide a security deposit to serve as collateral before you can start using the credit card.

When you start using your secured credit card to make purchases, those payments will not be deducted from the security deposit. You will be expected to repay the amount to the credit card provider just as you would with an unsecured credit card. Remember, the way you use your secured credit card will impact your overall credit score because it conveys to creditors whether you can use or manage credit responsibly. It is imperative that you make essential purchases that you already know you can repay. After about six months to 12 months of making timely payments and staying within the recommended balance, you can request your credit card provider to upgrade the secured credit card to an unsecured one.

Step 4: Make At Least the Minimum Payment By the Due Date

In your effort to build your credit history, it is crucial that you make your debt payments on time, and this applies to non-credit bills too. Missed utility payments that are way past due, old parking tickets, or outstanding cell phone bills can be reported to the credit bureaus. It is recommended that you begin establishing a reliable payment history by making at least the minimum payment on your bills by the due date. You should also avoid missing payments or making late payments. Consider setting up reminders on your phone, computers, and calendar to ensure that you consistently make your debt payments on time.

Missed payments and delayed payments will work against your credit history and score. If you cannot keep up with reminders, you may want to set up automatic bill payments. That means your bills will be paid automatically every month. This way, you will never be late for payments or miss payments. Besides, you will not have to pay for envelopes, trips to your bank, stamps, and checks.

Keep in mind that there are drawbacks to automatic payments. First, you must ensure that the money in your count is sufficient to finance scheduled payments. If you have set automatic payments, particularly if you are using internet banking, the payments won’t be made unless there is enough money in your account. That means you will miss the payment. Secondly, if your bank or someone else has set up the payment for you, there is a chance it will overdraw your bank account in case you don’t have enough money in the account.

Step 5: Adopt Good Financial Habits

Smart spending and saving practices are essential to building your credit history and score. The best way to achieve this is to create a well-thought-out budget that accurately reflects your income and spending activities. With a great budget, you will know how you can successfully live within your means and manage your finances better. Essentially, a budget is like a spending plan for your income. By assigning every dollar you earn to a specific activity, you will be in a position to determine whether you will have enough money to address your expenses in advance. Suppose you realize you don’t have sufficient money to address your expenses. In that case, you can still use your budget to prioritize your spending and channel your financial resources to specific areas that are a priority.

Now that you have a budget, it is time to set up money reminders. Create a list of all your bill payments and take note of the payment dates either on your wall calendar, smartphone app, or Google calendar notifications. No matter the method you use to set reminders, it will help you remember the specific date to make payments, and you won’t miss or make late payments. You may also want to live frugally. Frugal living is more than depriving yourself of things that make you happy and pinching pennies to save a few dollars. It involves making mindful choices so that you can live comfortably within your means.