By Jasmin Brown

BDO Debt Solutions

How to Rebuild Your Credit

Jul 20, 2021 | 9:48 AM

We work with thousands of people every year on getting a fresh financial start. As part of the process, people are required to attend two sessions covering topics like budgeting, money management, setting and achieving financial goals, spending habits, and responsible use of credit. For many, one of the most burning questions is, “How do I rebuild my credit?” This is totally understandable, as your credit score is part of your overall financial health. The great news is that even if you have had difficulty managing your payments in the past, have filed bankruptcy, or a consumer proposal, there are ways to rebuild your credit. A bankruptcy or a consumer proposal are meant to give you a fresh financial start, not to punish you for the rest of your days. People tend to tell us that it was a lot easier than they had thought it would be to rebuild their credit. Below is some important information for you to know.

How is your credit score calculated?

Whenever you apply for credit or borrow money, the lenders report the information to the credit bureaus, and the information is added to your credit report. Your credit report is a record of your credit history, and it is updated regularly by your creditors.

Your credit score reflects your borrowing habits, and there are a number of factors that effect your score:

· Payment history (35%) – do you make your payments on time, or have late or missed payments, debts in collections etc.

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· Amount owing (30%) – do you have room left on the debts that you have, or are they maxed out?

· Length of credit history (15%) – the longer your history, the more accurate your credit score.

· New credit applications (10%) – frequency matters, so you want to avoid “credit shopping” and multiple applications.

· Types of credit used (10%) – having different types of credit vs. one type can favourably impact your credit score.

Why does your credit score matter?

Your credit score impacts your ability to get approved for borrowing, and also the interest that you will have to pay. Interest is the cost of borrowing, and a high interest rate can mean a significantly increased payment amount. Having bad credit may impact your ability to borrow money to purchase a car, a house, or even to rent an apartment.

How to rebuild and improve your credit score

The process of repairing your credit takes time. Making positive money management decisions will be the most impactful. Some things to focus on are:

· Keeping your expenses lower than your income – a budget will be your most valuable tool;

· Pay your bills on time and in full – being late or missing a payment may seem minor, but it does affect your credit score;

· Keep your balances below their credit limits – if you are maxed out, any amount that you can lower the balances will help. A usage of 50% is very good, but 30% is excellent.

· Apply for an establish new credit – the more you use credit responsibly, the faster you can improve your credit score. You want to “borrow, pay off, and repeat.”

· Get a secured credit card – you have to put a deposit on the card, but then you use it and pay the balance monthly. It is relatively inexpensive, and the activity gets reported to the credit bureaus.

Please visit our website for additional information on how to rebuild your credit. If you do not actively take steps to improve your credit, it will not just improve on its own. When assessing your situation, if you find that your debt load is unmanageable or overwhelming, reach out to a Licensed Insolvency Trustee.

If you are having trouble making ends meet each month, finding the right debt solution can help. Visit the BDO Debt Solutions website for more information about bankruptcy, or call 1 855 BDO DEBT to book a free, no obligation consultation.

Prince Albert and Area