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How to rebuild your credit?

17 May 2018 by National Bank
Rebuild your credit score

No one is immune from financial misfortunes or mistakes. But how do you rebuild your credit when it’s been tarnished? Here are eight tips to help you do it.

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1. Pay on time

To rebuild your credit, it’s important to always make your payments on time, regardless of the amount. “A late payment has the same negative effect on your credit score regardless of whether the debt is $30 or $10,000,” says Sylvie Bouchard, Director, Credit and Evaluation Expert at National Bank.

For credit cards and lines of credit, you should always pay at least the minimum payment. Do you tend to be forgetful? To rebuild your credit and remember to pay on time, write a note in your planner. Or better yet, set up automatic transfers. “If you forget, at least the minimum payment will be made,” notes Ms. Bouchard. “You can also set up overdraft protection such as a line of credit in your account. That way, you’ll avoid unwanted penalties if a payment due date passes and the funds are not available.” Also, keep in mind that you can set up pre-authorized transfers for the entire balance due on your account.

2. Check your credit report

Consult your credit report once a year to monitor your credit score and make sure there are no errors or discrepancies. If there are any, it’s important to correct them. “Equifax also offers services to alert you in the event of irregular activities,” says Ms. Bouchard. This can help to detect identity theft, for instance.

Take advantage to ask for your credit score. “If it’s 680 or less, that indicates a decline,” says the expert. It’s a sign that you should start thinking about rebuilding your credit. For comparison, a credit score of 760 is considered excellent.

3. Avoid loading up your card

Avoid carrying a balance near your card limit. “When it’s too high, it will begin to affect your credit score,” notes Ms. Bouchard. “It’s better to have $900 in debt on a card with a $2,000 limit than a $1,000 limit.” If your credit card balance is high, the interest may result in you exceeding the limit, which can harm your credit score.

4. Ask for help

Don’t hesitate to talk to your advisor if you’re having financial troubles. They can sit down with you and develop strategies to resolve the situation. When applying for a loan, for instance, your advisor has access to your credit record. They can help you determine the best course of action for rebuilding your credit according to your habits. Sometimes, a single element can seriously affect your credit score.

5. Clean up your credit

Do you hold several credit cards, but only use one or two of them? Cleaning out your wallet can help you rebuild your credit. “People often get a store card to take advantage of a special offer,” says Ms. Bouchard. “But they forget there are often fees attached. And since they don’t use the card, they don’t keep an eye on their account statements and end up with very late payments that harm their credit score.” Don’t forget to call the card issuer to cancel the credit card. Cutting it into pieces isn’t enough.

6. Avoid making numerous requests

Many customers shop around at several dealerships when purchasing a car. It’s a smart reflex to save on their purchase. However, it’s a good idea to choose the car you want to buy before authorizing a credit check. Making too many credit requests can harm your score.

“Sometimes, people take out a mortgage, apply for a line of credit to do renovations, and purchase furniture on credit,” explains Ms. Bouchard. “And that may be justified. But accumulating loans over a short period of time can negatively impact your credit score.” It’s better to avoid making them all at once, and instead carefully plan your purchases.

7. Beware of endorsements

Do you have a loved one who’s rebuilding their credit, and wants you to endorse their loan application? Your helping hand could harm your own efforts to maintain a good credit score. By endorsing, you become responsible for the debt and any non-payment of commitments. “Generally, the financial institution will first contact the borrower to resolve the situation,” says Ms. Bouchard. “When that doesn’t work, they will contact the endorser. At that point, there may already be several months of late payments, and the endorser’s credit will be damaged.”

8. Start early

For young people, the question isn’t how to rebuild your credit, but how to start building it. “If you are disciplined in managing your finances, we recommend getting your first credit card as soon as possible,“ says Ms. Bouchard. “The minimum age to obtain a credit card is 18. Starting early will help you to gradually build a credit history, but you need to remain disciplined and ensure you always pay the balance. It’s not free money, and you don’t want to spiral into debt.”

It’s difficult to say how long it will take to rebuild your credit. It can vary enormously from one person to another. The worse your credit score, the longer it will take. But rest assured that your efforts will pay off in the long run.

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