Rebuilding a Bad Credit Score
Your credit score is important. That’s because it affects several big aspects of your life. Having a bad credit score can make it more difficult to get a mortgage, an automobile loan, a credit card, and many other types of loans. It can even make it tougher to rent a home. If you have bad credit, creditors will be less willing to offer you a loan and, even when they do, they’ll probably charge you a higher interest rate. This means it will cost you more to borrow, leaving you less money for everything else in life.
Bad credit makes it tough to afford various life milestones, and this can cause you to delay aspects of your life, such as buying a car or a home.
However, if you have bad credit, you don’t have to deal with it forever. There are ways to rebuild your credit score.
There is No Quick Fix
Before starting, it’s important to know that there is no quick fix that will immediately repair your credit score. Any organization that promises to be able to rebuild your credit instantly for a fee is likely being dishonest. The only way to immediately improve your credit score is if there is an error and you have it corrected. However, you can do this yourself by contacting the credit bureaus yourself. You don’t need to pay a company to do this for you.
What is a Credit Score?
Before you can build your credit score, it’s important to understand exactly what a credit score is. A credit score is a 3-digit number that represents the information in your credit report. Your credit report is a detailed snapshot of your financial history, such as which credit cards and loans you have, when you opened these accounts, whether you make payments on time, whether you have missed payments, the limits on your accounts, and more.
Credit reports and credit scores in Canada are maintained by credit bureaus. The major credit bureaus TransUnion and Equifax.
In Canada, credit scores range from 300 to 900, with a higher score being better. A good credit score is generally considered to be 650 or more. If your credit score is above 750, you are considered to have excellent credit. A score below 650 is considered poor while a score lower than 575 is typically considered a bad credit score.
Lenders look at your credit report and your credit score when they are deciding whether to give you a loan. As mentioned, a bad credit score can hurt your chances of getting a loan and you’ll pay more interest if you do.
How to Improve Your Credit Score
One of the most important aspects of your credit score is your credit history. Lenders want to see that you are able to borrow money responsibly and pay it back on time. Therefore, the best way to rebuild your credit score is to show that you can do this. Taking out a small loan and repaying it on time will show that you are handle your finances. Doing this over a longer period will improve your credit score.
If you have bad credit, you might find that it is difficult to get a credit card. It is tough to show that you can responsibly manage debt if you’re not able to get a credit card. One option for people in this situation is a secured credit card. With these cards, you put down a deposit and then receive a card that you can use just like any other credit card. As you make purchases, you will receive a monthly bill and your available credit will decrease. Making payments as they are due will improve your credit score over time.
However, it is important not to confuse a secured credit card with a prepaid credit card. Prepaid cards work like gift cards. You have a certain amount to spend and once this amount is spent, the card is no longer useable. You do not receive a monthly bill and, therefore, you cannot use these cards to rebuild your credit.
Missing debt payments will significantly damage your credit. It’s critical that you always make payments when they are due as even a single missed payment will negatively affect your credit score.
While you can damage your credit quite quickly, rebuilding your credit score takes time. Lenders will need to see that you have a long history of repaying your debts on time before they will feel confident in allowing you to borrow money or open up a new credit account.