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Ending up with bad credit in Canada can be surprisingly easy. A single missed payment that’s overdue for more than 30 days can lower your credit score. Miss several payments and your credit score plummets.
Having a low credit score can have significant effects on your life because it can mean paying a higher interest rate or even having your credit application denied. There are a lot of companies promising credit repair in Canada, but are they really offering good solutions? Read on to find out how to repair credit in Canada.
What is Credit?
Credit represents your financial power. Your credit shows financial institutions that it’s safe to lend you money because you have the ability to repay your debt.
Everyone gets a credit report when they apply for credit or when they borrow money. Lenders send your financial information to credit reporting agencies or credit bureaus.
What is Credit Score?
Credit score is a three-digit number that shows financial institutions how well you can manage credit. Your credit score is calculated based on your credit report, and you lose points if you don’t manage your credit well and gain points if you do. This enables financial institutions to estimate how risky it would be to lend you money.
Credit bureaus don’t reveal the formulas they use to calculate your credit score. However, there are several factors that can lower or improve your overall score, such as:
- The amount of time you’ve had credit for
- How long your credits have been
- Credit card balance
- Missed payments
- Outstanding debts
- Being close or above your credit limit
- Type of credit you use
- Records of insolvency or bankruptcy
- And more
Credit bureaus and credit reporting agencies update your credit score every time they update your credit report.
What Leads to a Bad Credit?
Credit scores in Canada tend to be around 300 – 900. Most financial institutions consider credit scores of over 650 good and those of over 750 excellent. On the other end of the spectrum, they consider credit scores lower than 600 as below-average and those lower than 575 as bad.
But what leads to bad credit? Here is a list of possible causes
- Late or missed payments – every late or missed payment lowers your credit score.
- Maxed out credit cards – credit card debt is bad for your credit score. Having a lot of money on credit cards leads to having a high “credit utilization”, which lowers your credit score because it shows financial institutions that you don’t have the ability to fully repay your debts, thus making you a credit risk.
- Applying for multiple credit cards within a short time – this indicates that you have an unstable financial situation, which can lower your credit score
- Taking on large loans that you can’t afford – indicates that you can’t manage your finances, which can lower your credit score.
- Defaulting on a loan – can be disastrous for your credit score because the lender records that you’re unlikely to repay your debts.
- Consumer proposals and bankruptcies – Even though both options can discharge part of your debt, filing a consumer proposal or bankruptcy affects your credit report for up to 7 years.
Credit analysis represents the evaluation of your loan application to determine whether you generate enough to settle your debt obligations. To achieve this, the lender or financial institution has to collect information from you and the credit bureau.
Credit analysts use various techniques to evaluate your information, such as ratio analysis, cash flow analysis, trend analysis, and various projections to determine whether the risk of lending you money is acceptable or not.
If the risk is acceptable and they agree to service the credit, the lender submits a recommendation report containing the findings and the final decision to the credit committee, and you receive the money.
What is Credit Repair?
Credit repair represents the active process of improving your credit score. This process takes time, and you cannot boost your credit score overnight. Even though there are a lot of companies that advertise credit repair services in Canada, the truth is that there are only a few legitimate businesses that can help you improve your credit score.
As a rule of thumb, there’s not much credit repair companies can do to help with your credit score. Legitimate credit repair companies can only help you remove inaccurate information that may show up on your credit report and damage your credit score. But other than that, you could easily do most of the things on your own, and free of charge.
How to Repair Your Credit in 5 Easy Steps
You might believe that only a credit repair company can help you improve your credit rating, but that’s usually not the case. Most credit repair companies charge a premium to help you with things you can do on your own for free, such as:
1. Correct possible errors in your credit report
You can request a free copy of your credit report from Equifax and TransUnion, the credit bureaus in Canada that can collect, store, and share information about your financial situation.
Check the credit report for errors and notify the bureau if you find any, along with the necessary documentation to support your claims.
2. Pay your bills on time
Late or missed payments can severely affect your credit score. Make sure you don’t miss on payments. And if you think that you can’t make a payment on time, contact your creditor and try to work something out before the bill is due.
You can also consider setting up automatic payments to avoid missing bills that can affect your credit score.
3. Pay off your debt
If you have multiple payments to make and you’re struggling to meet them, think about consolidating your debt. Debt consolidation means taking out a loan that’s large enough to pay off your existing debt at a lower interest rate. Debt consolidation also means bringing all your debts under a single payment that’s easier to manage.
4. Don’t borrow too much
Credit utilization is the amount of credit you’re using compared to how much credit is available to you.
For example, if your credit card has a limit of $5,000 and you have a balance of $1,000 owing, you’re only using 20% of your available credit, so your credit utilization is 20%.
Pay down your outstanding balances and keep your credit utilization under 30% to improve your credit score.
5. Be patient
Rebuilding your credit score takes time. There’s no overnight solution that can help you do this faster. However, being patient and doing the work every month can help you reach the credit score you’ve always wanted.
What’s a Credit Repair Company and What do Credit Repairing Companies Do?
Credit repair companies promote debt relief programs and services. Some claim that they can help you improve your credit score, and charge a premium to advise you on how to rebuild it. However, the truth is that there’s little a credit company can do that you can’t do on your own.
Remolino & Associates can help you assess your income, assets, and debts to create a plan on how to improve your credit score. Our Licensed Insolvency Trustees are financial experts who can help you find debt relief solutions, manage payments, keep your spending in check, and more.
Book a FREE, confidential, no-obligation consultation with one of our financial experts and find out how you can repair your credit score.
Frequently Asked Questions About Credit Repair
Credit repair companies can help you identify the factors that lower your credit score so you can address them
There are only a few legitimate credit repair companies in Canada. And the truth is that even legitimate credit repair companies can only do so much to improve your credit score.
Credit counselling can offer you guidance on consumer credit, debt management, money management, and budgeting. The goal of credit counselling is to help you overcome debt.
Remolino & Associates can help you come up with a plan to improve your credit score. However, nobody can fix your credit except yourself.
You can wipe your credit clean by paying off your existing debts, unpaid bills, and by correcting all the other factors that impact your credit rating.