Your credit rating may be just a number, but it’s a number that carries some power. When you apply for any type of credit, including a mortgage, car loan, or credit card, the lender will immediately look at your credit rating. This rating determines how much of a risk you are to lenders based on your repayment history and overall debt load. A bad credit rating can result in higher interest rates or being denied credit altogether.
If your credit rating is low, these steps can help you improve your credit rating:
Step One—Order your credit report.
Before you can improve your credit rating, you need to get a copy of your credit report. Canada has two major credit reporting agencies–Equifax and TransUnion. You can order a copy of your reports from each agency by mail for free, or online for a fee.
Step Two—Dispute inaccurate information.
Once you get your credit reports from both agencies, look over each account carefully. Errors in credit reports are common – one report from the Public Interest Advocacy Centre found that 18% of people surveyed found at least one error in their credit report. Things to look for include:
- Accounts you aren’t responsible for
- Accounts that were inaccurately reported as late
- Accounts more than seven years old that should no longer be reported
If you find inaccuracies, follow the dispute process outlined on Equifax and TransUnion’s websites. By law, they are required to investigate all disputes. Accounts that can’t be verified will be deleted from your report.
Step Three—Bring all accounts current.
Accounts are reported to the credit reporting agencies every month. Each month you fail to pay the required payment, it brings your credit rating down. If you have accounts that are behind, the first place to start in improving your credit rating is to get them up to date. Try working with your creditors to bring them current through a revised payment plan.
Step Four — Pay your bills on time.
Improving your credit rating takes time. While removing inaccurate information can cause your credit score to improve quickly, the majority of the time, improvement is slow and steady and comes after you consistently pay your bills on time. The older a late payment or negative mark on your credit report is, the less of an impact it will have on your overall score.
Step Five — Avoid constantly applying for new credit cards.
I’ve read some debt counselling articles that suggest that you take advantage of “no interest” deals on the first few months of a credit card, then switch to a different card for a new deal when the first expires, continuing this from card to card. This eventually leads to a good number of refusals. While it is good to try to use credit cards with lower interest rates, it is not a good idea to use this revolving credit card scheme. One of the things a prospective lender will look at, is the number of times you have applied for new cards, and how often you have been refused. They will be suspicious that you don’t have a good handle on your spending if you need so many credit cards.
Step Five—Pay down debt
Your overall amount of available credit also affects your credit rating. If all of your credit cards and accounts are at their limit or close to it, your credit rating will be lower. To improve your credit rating, you need to start paying down your accounts and avoid running up new credit.
A poor credit rating can be costly. While following these steps can help you get your credit back on track, if you have multiple accounts in collections or can’t afford even the minimum monthly payments, it may be time to seek professional help. A Licensed Insolvency Trustee can go over your finances with you and help you find a solution to your debt problems before your credit rating gets any worse. The best option is always to get information and advice as soon as possible. The earlier you seek help, the greater variety of options you will have available to solve your problem. Give LCTaylor a call today.
Leigh C. Taylor, LIT
