Repairing Bad Credit
It’s a slow process to repair bad credit.
When you have bad credit, you may not be approved for home mortgage financing. Or, you may have to pay higher interest for your home mortgage. The mortgage interest rate a for a borrower with poor credit if a mortgage is granted, typically pays 2% to 3% higher than a normal good credit borrower.
Past bad credit problems like collections on unpaid debts, debt write-offs, overdue and late payments all can drag down and ruin your credit. It is in your best interest to know how to avoid getting into a situation that could ruin your credit. .
In Canada, credit agencies use a credit scoring system to measure the risks of extending credit to Canadian consumers. The credit scores for Canadians range from 450 to over 850. Bad credit individuals are found to score below 550, poor credit scores are from under 600 to 640, and excellent credit individuals may have credit scores from 750 to 850.
Poor credit can be due to a combination of poor credit cards payment history, bad debts, collections, high credit utilization at or near to 100% of credit limits and short credit history. Late payments are common to many consumers, and poor management of credit cards payments is one of the most common reasons for having a poor credit rating. Knowing how credit works can help you avoid some of the common problems that can affect your credit rating.
Common Credit Problems
Very often, you may not even be aware that there is a problem with your credit. Some of the common problems include:
- inadvertent missed or late payments on a loan, credit cards or bills.
- errors in credit reporting.
- over extended use of credits.
- bad debts and collections on credit report.
- “No established credit” is a problem for new immigrants or consumers who have no credit cards (it is difficult for lenders to evaluating your ability and intention to repay your loan).
There are a few simple rules to follow to avoid having a bad credit rating. These include:
- Regular checks on your credit reports. Mistakes made on your credit report will affect you even though it is not your fault. Checking and reviewing your credit report annually will help you correct such mistakes.
- No credit score. Find a way to build your credit. Your bank or credit card companies can help. If required you can get “secured” credit cards by pledging equivalent amounts of money to secure the credit limits you desired.
- Repair bad credit. A loan from any specialized loan companies can help you repair your bad credit rating. But, make sure you keep up with the required monthly repayments. Failure could result in your credit becoming impossible to repair. You should get at least two “secured” credit cards by pledging equivalent amounts of money to secure the credit limits you required. A credit limit of $500 or $1,000 is a good start to rebuild your credit.
- Avoid making late payments. You must make the required minimum payments before the due dates. It only takes a few months of missed or late payments to ruin your credit.
Managing Your Credit
It can be very difficult to manage your credit if you have a lot of debts. But, it is important for you to bear in mind that late payments and poor management of your credit can ruin your chance of getting a loan when you need it.
It’s easier to manage your debts than to repair bad credit. If making the minimum or required amounts is a struggle, you have to find a solution. You can do this in a number of ways:
a) Seek to consolidate your debts with a loan.
If you are successful, you will make one monthly payment instead of several payments. You improve your cash-flow when high interest credit cards debts can be consolidated with a loan.
b) reduce your expenditures or cut back on your spending
When you examine your expenditures, you will be surprised to find that you can cut down your spending and better manage your money. Work on a monthly budget is a good start to know where and how you spend your money.
If you have any questions on managing your credit, or getting a loan when you are turn down by your bank because of poor credit, you are welcome to contact James Wong 604-721-4817 at The Mortgage Center - Home Financing Solutions for a discussion.