credit scoreCredit scores have become an important part of modern life.  Unfortunately, if you have a low credit score you’ll likely pay higher interest rates for everything you buy on credit.  For long term purchases like homes and cars, this can amount to thousands and thousands of dollars.  As a result, credit repair has become big business.

The Internet is full of websites offering easy credit repair.  Buyer beware!  Many are nothing more than screener sites to get you to sign up with an expensive credit repair company.  There is nothing a credit repair company can do for you that you cannot do for yourself.  All it takes is a little knowledge and some time and effort.  Here are some credit repair tips you can actually use.

First Steps

  • Start with a free education

The more you understand how the bureaus calculate your credit score, the easier it will be for you to repair and maintain your credit rating.  The Financial Consumer Agency of Canada (FCAC) maintains a website with a gold mine of valuable information. They have comprehensive information that will teach all you need to know about the wonderful world of credit from ‘what is a credit report’ to ‘steps to correct errors.   The best part?  It’s free.

  • Check your credit report for errors

Believe it or not, many Canadians have never even seen a copy of their credit reports.  In Canada there are two major reporting agencies, Equifax Canada and Trans Union Canada.  Your first step is to obtain free copies of your credit reports from both agencies.  Review each report for accuracy. Pay special attention to any debts that are more than seven years old, you may be able to dispute them and remove them from your report.  Each report comes with instructions for how to dispute items you find in your report that are wrong.  Cleaning up your report is a must.

  • Explain your negative items

Negative items on your report that are accurate cannot be removed.  However, you are entitled to include a note in your report explaining the circumstances.  If you fell behind in on-time repayments due to illness or job loss, a letter of explanation can help in the long run.  In the short term it won’t raise your score at all, only a record of on-time payment and appropriate use of credit cards can do that.  Due to the fact that negative items can remain on your report for up to seven years, the letter of explanation can help.

Maintaining Your Credit Score

  • On-time payment

The most important thing you can do to maintain (or improve) your credit score is to make your payments on time.  Setting up online bill payment through your bank can be a big help.  Not to mention, you won’t be paying those expensive late fees.  You’ll also have access to your payment history through your online account’s transaction history, which makes budgeting and expense tracking a much easier endeavor.

  • Outstanding credit

One of the signs of credit risk that the agencies look for is high levels of outstanding credit.  If you’re in danger of approaching the limits on your cards this will likely send up a red flag to the reporting bureaus and could have a negative affect on your credit score. Most creditors report the last monthly balance to the agencies.  Make sure your balances are less than 50% of your limit right before your monthly statement ends.  Balances above 50% of the limit will start costing you points on your credit score.  Staying around 50% won’t hurt you but it won’t help you either.  To improve your score, try to keep your balances below 30% of your credit limit.

  • Credit inquiries

For folks who find they are approaching their credit limits, one of the go-to solutions is applying for new cards.  Did you know that every time you apply for credit it shows up as an inquiry on your credit report?  These inquires cost you valuable points from your credit score.  If the balances on your existing cards are at or approaching the limit and its absolutely critical that you have access to more credit, contact your existing lenders and ask for a credit limit increase on your existing card.  Be sure to keep those balances below 50% of your overall limit.

Your credit score is a complicated, but very important of your overall financial picture.  Aside from the stress that a low credit score causes, it can also end up costing you a lot in the long run.  Your first step is to obtain copies of your credit reports.  You might be surprised at what you’ll find.  It’s not impossible to improve your credit score.  It just takes a little time and effort, but trust me, your finances will thank you later.

About - David was initially drawn to accountancy because he was ‘good with numbers’. He has been an insolvency professional since 1993. Soon after he began to work with debt issues he discovered that the most satisfying part of his role was the ability to make a positive difference in other people’s lives. It is the person, not the numbers that continues to guide his approach toward helping others deal with debt issues.