Don’t pay someone to do what you can do for free
Published Jun 28, 2023 • Last updated 4 days ago • 4 minute read
Focus on improving how you manage the credit you already have to improve your credit score. Photo by Getty Images/iStockphoto files If I had to pick one underlying reason why consumers choose to deal with their debts, it would probably be to improve their credit rating.
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Access articles from across Canada with one account. Share your thoughts and join the conversation in the comments. Enjoy additional articles per month. Get email updates from your favourite authors. Of course, peace of mind knowing your bills are paid, that you won’t lose your home and that debt collectors will stop calling are important, too. But when it comes right down to it, everyone is concerned about their credit rating. Some are so desperate to increase their credit score that they’ll try anything. Ironically, that can sometimes lower their score.
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To start with, it helps to understand what a credit score is and why you have more than one. A credit score is a number between 300 and 900 and it’s based on specific information contained in your credit report. You will usually have two credit reports: one from Equifax Canada and the other from TransUnion Canada. Each can contain slightly different information depending on how and to which company your creditors report the information.
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Article content The score you are assigned changes based on how you are using the credit that has already been granted to you and it helps lenders decide the likelihood that you will repay any further credit they give you. It is also up to each lender how they interpret your credit score. A score of 750 might be “very good” at one lender, but another might view it as “excellent.”
Want to improve your score? Focus on improving how you manage the credit you already have. Get a free copy of each of your credit reports to ensure they are accurate. Then avoid these three pitfalls as you work to improve your credit rating.
Don’t pay someone to do what you can do for free No one can improve your credit score for you, so, as tempting as it is, avoid expensive loans, high-fee programs and promises of quick action. It takes time to rebuild your rating and accurate, negative information can’t simply be erased from your report, no matter how convincing a consultant may sound. Signing up for a credit-repair service is spending money you likely don’t have to pay for a service that could leave you worse off.
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Article content Apply for a secured credit card, but buyer beware If your credit is really bad, you probably can’t use your credit cards anymore. Maybe this is motivation for cleaning up your credit because we all need access to a credit card for even simple things such as buying movie tickets.
One way to get a credit card is to apply for a secured card. Save up as much money as you want your limit to be — for example, $1,500 — before you apply. The creditor will hold your money as a security deposit, which is not part of your application fee. If you don’t make all your payments, it will use the deposit to pay off what you owe and then cancel the card.
As long as the secured credit-card company reports to a credit bureau, it can help you build up a positive track record on at least one of your credit accounts. If you do this while also dealing with the negative information on your report (say, paying off debts in collections, making all payments on time and having errors corrected), you will begin to see improvements in six to 12 months.
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Article content Stick with federally regulated banks, credit unions or credit-card companies when applying for a secured credit card. Private companies offer them, too, under licence to use the Visa and MasterCard systems and logos, but it can be much harder to settle disputes with less regulated companies. If you want to apply to a private company, check its reviews online, verify who owns the company and see what its track record is for resolving complaints and whether your deposit is insured against loss or not.
Create a realistic budget to manage all your payments One big emergency expense can put us back into financial trouble, but the culprit is typically the accumulation of a lot of regular expenses. However, you need to get on top of all those regular expenses to bring payments up to date when you want to rebuild your credit rating.
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Article content The easiest way to do that is with a realistic household budget and paycheque plan. If you’ve never used a budget before, try creating one with the help of an interactive tool, such as one from the Financial Consumer Agency of Canada.
8 steps your new graduate can take to set up a debt-free future Worrying about money? Here’s how to take control of your fears How to protect your credit rating even when struggling financially Ultimately, your overall well-being is more important than your credit score. Before you take drastic measures to try to improve your score, consider why it’s so important to you. If you want to buy a car or a home or need a loan for other reasons, ask yourself how you can adjust your timeline to make your purchase more realistic given your circumstances. Calculate what the payments will cost and see whether you can truly afford them. Then make a financial, rather than an emotional, decision.
Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 26 years.
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