Life Happens!  Plain and simple, bad credit affects your credit rating/score (FICO score) and your ability to get financing.  The impact of bad credit can range from not getting the loan or credit card to having to pay interest rates well in excess of what you would see if you had good credit.

Here are a few steps you can take to repair your credit:

1) Get a copy of your current credit report.

In Canada, there are two main credit bureaus

1. Equifax            1-800-465-7166
2. Trans Union     1-800-888-4213

Of the two bureaus, likely the most recognized would be Equifax.

 

2) Review your credit report.

1. Yes, mistakes are made.  Past bad credit may not have been removed even though they have already been paid.
2. There may also be comments, which are considered to be negative.  This is your opportunity to respond to those comments.
3. If you do owe money to a creditor, repay the creditor and ask that they remove the negative credit including comments from your report.

 

3) Pay off debt.

• If you have a significant amount of debt, this can also affect your ability to get credit.  Some lenders will have a problem with extending credit if they see a significant amount of debt, even though all payments have been made.  The general consensus is to keep debt to less than 30-50% of your credit limit.
• Pay off the debt with the highest interest rates first.

 

4) Take out a loan or get a credit card.

• That's right, get a loan or a credit card and purchase something you know you can pay off in very short order.  If your credit is poor, you may have to pay a higher interest rate but if you pay the debt off quickly, the interest charged will be minimal.  
• Why?  Lenders like to see two healthy revolving trades = Credit facilities [example: Credit Card or Line of Credit]
• If you cannot get a loan, ask a family member or friend to co-sign for a loan or credit card.  Repaying debt on a small loan or credit card will help speed up your ability to repair your credit.

 

5) Call the lender.

• If you cannot make your minimum payments, consider calling the lender and explaining your situation.  Many lenders look favorably on those that take the initiative to deal with their debts.

 

Unless you win the lottery, everyone will eventually need credit and it's too late to deal with bad credit when you need credit.  Lenders base much of their lending decisions on your past history - especially within the past 12 to 24-months.  To pay off debt the day before your looking for credit is no good.

My Tips

• If you have bad credit, don't get too overwhelmed, take each debt one step at a time.  
• Pay off the highest interest rate debt first and go from there.  
• Showing your willingness and ability to deal with past debt problems goes a long way to showing lenders that you are worth considering.