Steps to Re-build Your Credit
Posted by Gail | Filed under Credit Wise
I recently received a letter from a young lady that I decided to share because it’s so similar to the hundreds of other letters I get in a month. D wrote:
My credit is a mess. I was trying to pay off my student loans when I was sidelined by an unexpected illness and had to use my credit cards and line of credit to see me through. I eventually had to declare bankruptcy. What do I do now?
The first thing you should do is get a copy of your credit report for free by writing to either of Canada’s two major credit reporting bureaus:
- Equifax Canada Inc. Equifax Canada Inc. Consumer Relations Department, PO Box 190 Jean Talon Station, Montréal Quebec H1S 2Z2, Telephone: 514-493-2314, Toll-free: 1-800-465-7166, Fax: 514-355-8502, consumer.relations@equifax.com, www.equifax.ca
- Trans Union TransUnion Canada – Consumer Relations, 709 Main Street West, PO Box 338, LCD 1, Hamilton Ontario L8L 7W2, Telephone: 905-525-0262, Toll-free: 1-800-663-9980, www.tuc.ca
If you ask to see your report by mail there is no charge. But you may be charged to view your info online.
TIP: Since it’s important to check your credit report at least once a year, but preferably twice, you can write to one and then the other credit bureau on a six-month basis and get two checks a year for free.
Next, you’ve got to get busy rebuilding your credit history. Start small and build a history that shows you are responsible by paying your bills in full and on time.
Since “assets” are a good indicator you’re your credit personality – if you have some you’re a better risk – set up a savings account and start stashing some money away. Since you need to be doing some long-term planning, both a retirement account and an emergency fund are a good idea. Remember, you can start small. Just START.
Setting up services in your name will also help re-establish your credit ID. Get telephone, cable and utility services in your name. Because you have a crappy credit history, you may need to provide a security deposit. Once you’ve proven your payment track record, you can ask for the deposit back and throw it in your emergency fund.
Now it’s time to apply for a secured credit card. Ask your bank how it works. Usually you need to leave on deposit one-and-a-half to two times the credit limit. So to get a credit card with a $500 limit, you will need to put $1,000 on deposit with the credit card company or bank. You can get your deposit back after between six months and a year. Make sure you know how long this is (it varies) so you can plan how you’ll reallocate that money (to retirement savings or your emergency fund).
Gas or department store credit cards are often easier to get and can be good ways to re-establish credit. You MUST pay your bills in full and on time because the interest rates on these cards are often astronomical. As long as you don’t miss a repayment – which you never will again, right? – it makes no difference what the interest rate is. Use these cards wisely and they can be a great toe-hold back into credit.
Once you’re on you way, it’s time to get your first new installment loan. A retirement savings loan is the perfect way to do this since this loan, while not officially collateralized, might as well be. What it does mean is the interest rate won’t be horrendous. Only borrow as much as you can afford to repay in six months. Don’t let them talk you into more. Then, once the six months are up, use the amount you were using to repay the loan as your month retirement savings contribution. Now you’ve gone from catching up to being proactive about saving and you’ve helped your credit history too.
I’m not sure I should have to remind anyone at this point, but you MUST BE LIVING ON A BALANCED BUDGET! All the work in repairing your credit history will be for naught if you start spending more money than you make. And you MUST build an emergency fund, so that what happened the last time – something like an illness pushing you to credit – doesn’t happen again.
September 10, 2009 at 6:57 am
excellent advice…at the bank I work at we have a brochure we can hand out to clients called “understanding the credit granting process”, we also give them the same advice you listed in your blog…one other note, the hold time for a secured Visa is usually 3 years…
September 10, 2009 at 8:55 am
Gail makes a great point on checking your credit report at least twice per year, more importantly requesting information from each of two bureaus in Canada. It’s important to know that Transunion and Equifax do not necessarily share information so checking both reports carefully to ensure that your personal info is up to date and correct is a good practice. Also, it’s a great time to make sure you’re not a victim of credit fraud.
Great advice Gail!!
September 10, 2009 at 9:04 am
I have heard from various sources that checking your credit report actually affects the credit rating. I always thought that seemed wrong, but so many people have said that to me before that I have been hesitant to look. Does anyone know why others might think this?
September 10, 2009 at 9:12 am
I’ve never checked my report. Never seen my score. I guess I should add that to my ‘to do’ list. I peeked at the Equifax site and found only paid online versions. Do you just call, ask for a form and send it in? Feels odd putting that kind of information down after years of being careful with it LOL
September 10, 2009 at 9:19 am
Jennifer if YOU request your credit report it does not show up and will not affect your score. If you apply for a whole bunch of loans and such in a short period of time, that may, as it looks like you are doing a whole bunch of “credit shopping”.
In addition, when you get your report, you will likely see several inquiries from people you already do business with. These are “hidden” and not shown to potential creditors when they access your file (ex. your Credit Card company may be checking on you to make sure you are paying all your other creditors on time).
September 10, 2009 at 9:19 am
Gail, timely post for me. I’m trying to assist my 20 year ols daughter in rebuilding her fragile credit history after some very bad unfortunate circumstances: roommates that left suddenly and a job loss so soon after she left the nest. Your advice is slowly becoming a resource that will help her (and me in the process) to become women of Independant means! Her credit history has not been as damaged as mine, so therefore it is easier to bounce back from.
Her secured Visa was returned and the balance paid when she no longer had an income in order to keep her history from going completely sour. Now that she is working again, she will be establishing an emergency fund first, and learning to keep a balanced budget BEFORE she tries a credit card again.
Oh to be young again, and have such knowledge of financial matters!
Jennifer, I believe it is only credit inquiries from credit sources that will affect your credit rating, not checking your own credit for accuracy. I have checked my own credit reports before, and they have never affected the actual report itself.
September 10, 2009 at 9:56 am
Jennifer – I third that, if YOU check your own credit history, there is no penalty.
My boyfriend is currently working to repair his credit. Our problem is that he’s 26 and has never had any credit… he had one black mark on his report from 5 years ago when a roommate he had co-signed an apartment with up and left and didn’t pay monies owed for damages/cleaning.
That debt was paid off a year ago, and should now be in good standing. He got a secured card of October of last year ($500 down for a $500 limit). We’re going to wait until October to check his credit to see where things stand.
September 10, 2009 at 10:24 am
one other thing to note…you need to be discharged from your bankruptcy for at least 2 years before a bank will approve you for a secured visa and discharged for 7 years for other credit…
September 10, 2009 at 11:04 am
Been in that same situtation myself and in “recovery”. Doing well now. I got my secured CC through Capital One and they were great. A year with the secured funds and I was good to go. My question is about the credit report too…. I order mine every 6 months but what am I looking for and what do I do with it? When you get the “free” version there is no credit score listed (only if you pay for it). The debts I filed bankruptcy on are still listed on the credit report. Do they eventually go away? What happens at the 7 year mark? Is a bank CC better than one from other companies? Another other good info? Thanks all!
September 10, 2009 at 11:22 am
I think this is great advice for young people starting out too!
September 10, 2009 at 11:51 am
Checking your credit history is scary. But it’s so important, even if you are super responsible with all of your bills. It’s easy to sign up for a store credit card, forget about it, and have a small charge accumulate and tar your record. You’d never know it unless you checked.
Another reason to check it: I had a joint credit card and thought I was accumulating good credit for years and years until I finally checked my credit score. I realized that because I was not the primary card holder, it wasn’t accumulating any credit in my name! I made sure to go and get a credit card in my name after that.
September 10, 2009 at 12:00 pm
To jolie – I wouldn’t recomment calling these companies, I haven’t had any success in doing so (it seems as though there isn’t actually a ‘person’ on the other end of the phone when you call, so you won’t be able to talk to anyone to request your credit report). I had an alert on my file from years ago (wallet was stolen), so I had to write to them to tell them to change my address in their files and then request a report.
When you do request a report, they will need a bunch of information from you (I assume this criteria can be found on their website… or does anyone know off-hand?).
I’ve only checked my credit report a few years ago… it is necessary to keep checking it, even if you know that it’s fine? I pay all my bills on time, never keep a balance on my credit cards, pay mortgage on time and don’t have any surprise cards (I barely ever use credit cards to begin with!)… should I request yearly anyway? I’m just wondering if it’s a waste of time or not…
September 10, 2009 at 1:11 pm
Was wondering when you do the mail in form for free, what information do they provide. Do they provide a number rating or just your credit information? I’ve done the online version and I found the number rating to be helpful to know where you are at.
September 10, 2009 at 1:14 pm
Calling both of these companies works if you follow all the automated prompts and input all the information they ask you for. Your report is sent out to you in the next week. No, it doesn’t have your credit score on the free yearly one, but it allows you to see your ratings inprove as you pay off your debts on time. It also allows you to see if someone has stolen your identity and signed up for credit in your name and may be wrecking your credit score without you knowing. You can then request that the companies look into the fraudulent users. If the company doen’t have your current address on file though, you will have to write to them to make that change first.
September 10, 2009 at 1:25 pm
Josee:
If you are good with your bills, you want to make sure that everyone has the same info. This is especially important before a major purchase on credit or renewall of mortgage. The biggest problem is identity theft and you might not know unless you get your credit report and ensure that every transaction and every account is accurate. If there is a problem, get it fixed before you ask for credit.
Andrea:
Getting the credit rating value costs extra. I don’t think it should, but it does. The report lists credit activity, usually states your payment history for each account (payed on time…), and might state how much of the credit line is used. You will also find out WHO is checking your credit information.
Forms for mailing:
Both websites will eventually lead you to forms available online that you can use to mail and get the report for free. A little digging is required to avoid wasting money.
If you know you are expecting a credit report in the mail, check you mail VERY carefully to make sure no one steals that important report which contains so much of you personnal information.
September 10, 2009 at 1:48 pm
To jolie (and anyone else who doesn’t know this):
Here’s where you can download the forms to ask for your free credit report. Note that Experian is no longer one of the institutions that provide free reports; you’ll have to scroll down and use the other two forms.
http://canadian-creditreport.com/free.htm
September 10, 2009 at 1:57 pm
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September 10, 2009 at 3:08 pm
Thanks for the information! ‘In all my born days’ I’ve never checked our credit rating ourselves. Have been told by our bank many times, but, will check it out. Hope what I’ve copied and pasted here works for you. I’ve copied the forms to fill out. Who knew I might be the computer guru who could do this? I’m SO NOT computer saavy LOL.
http://www.equifax.com/ecm/canada/EFXCreditReportRequestForm.pdf
http://www.transunion.ca/docs/personal/Consumer%20Disclosure%20Request%20Form%20_en.pdf
September 10, 2009 at 4:56 pm
Checking your credit report has NO effect on your score what so ever. Self checking is called a soft hit, whereas if a credit company checks that is considered hard hit. Hard hits are the ones that effect your credit score/worthiness. I check my credit score every three months with both bureaus. I always say (since I was bitten by someone taking my ID) better to be safe than sorry. My continual checking hasnt effected my credit what so ever. However if you are looking for your actual credit score then the only way to obtain this is through the internet and yes you have to pay for it…….go figure something that is yours you have to pay for…….I think these bureaus are run by banks……LOL…….
Regardless both Transunion & Equifax will mail you copies of your reports and they also give yout he forms for any disputes. If you have even the smallest dispute USE THE FORM!!!!!! You never know the smallest dispute may at some point bite your ass in a big way…….example a 100$ dispute may eventually be 1000$ if not taken care of right away.
Anyways happy credit monitoring everyone, it has saved me more than once being anal about it and its paid off many folds!!!!!!!!
September 10, 2009 at 5:40 pm
Another thing you can do to protect yourself, it you are not actively seeking credit, is to put a freeze on your account at all 3 credit reporting agencies. You must fill out a particular form and pay a fee (I think it’s about $10) but this way NO ONE can obtain credit in your name without your knowledge.
September 10, 2009 at 6:02 pm
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September 10, 2009 at 6:41 pm
Another thing you can do to protect yourself, it you are not actively seeking credit, is to put a freeze on your account at all 3 credit reporting agencies. You must fill out a particular form and pay a fee (I think it’s about $10) but this way NO ONE can obtain credit in your name without your knowledge.
Oops…forgot to say great post! Looking forward to your next one.
September 10, 2009 at 9:16 pm
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September 10, 2009 at 9:55 pm
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September 10, 2009 at 10:36 pm
I just received a phone call from a department store credit card company (I just finished paying off the card in full this month!) who offered to monitor the credit bureaus for me and notify me of any suspicious activity for $19 a month (that’s $228/year). I declined, mainly because I didn’t want that company to have all my credit information.
September 11, 2009 at 12:04 pm
Judy, they have all of your information anyway. But good for you for saying no. That is a ridiculous thing to spend money on.
September 13, 2009 at 6:14 am
The ONE free credit report a year thing is actually incorrect. In Canada you can order your credit report from Equifax and Transunion as often as once a month FOR FREE.
You can use their automated 1-800 numbers (and follow the voice prompts and identity verification questions) or send in the written request (along with a copy of your Drivers Licence showing current address and a copy of a utility bill or credit card).
I order a copy of each credit report once every three months or so right now and have never run into a problem.
Of course if you want your credit “score” you’re going to have to pay them.
Just my $0.02
September 14, 2009 at 11:45 am
How about getting credit when you have no history?
I haven’t had a credit card or loan for over 15 years. We had very low income for several years and I stopped using my cards and cancelled them. I realize now that was not a good move as I do not have any credit hisotry. My husband and I have a mortgage (joint) but it doesn’t show on my credit report (not sure why not).
Am I in the same situation as someone with bad credit or do I need to follow a different path to establish credit?
September 15, 2009 at 11:09 am
I just called the Equifax 800 # and followed the prompts – should receive my free report next week!
September 18, 2009 at 7:53 am
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September 23, 2009 at 3:51 pm
K, I did something similar about 3 years ago, going from renting in town to owning with only a 30 min commute. I’m still living with the consequences. Commuting when you have a busy family is a nightmare. My early teenagers hated it too. The older house we bought ended up urgently needing repairs (no inspector could possibly have found these problems, it was a fluke that we found them) so we ended up with a LOC. Because of our finances, we don’t feel we can sell until we pay off the LOC. I was stressed and gained 15-20lbs in the first 2 years. So if you choose to do this, it may not be easy to reverse your decision, there will be costs you can’t predict and you will be STRESSED. Now, the teens are getting old enough (ie, driving themselves) so that I’m finally achieving some balance and getting my life back. I can’t imagine this life with younger kids who are only going to need your presence and your time more as they get older.
For younger kids, ten hours in daycare is probably not what you envisioned when you decided to raise a family, no matter how good the daycare is. You would get to see them for, what, an hour a day?
If you really feel the need to explain it to your folks (I wouldn’t, but you may), ask them how they feel about you missing most of the grandkids’ young little lives and feeding them fast food and griping at them all of the time because you will be EXHAUSTED from commuting every day.
When you are thinking about this, it is not just cost of renting vs. cost of owning. It is cost of owning plus cost of commuting plus cost of older home maintenance plus additional cost of daycare plus cost of fast food and many other conveniences. I know this is a financial website, but most especially, it is the cost to your emotional and physical well-being (and that of your family) caused by 2+ hours in the car every day.
I can’t believe your parents (and others) have all of the facts or they would not be pushing you in this direction. Stay where you are ($1200 for a place like that is like gold!). Get them to put the $50k into RESPs for the kids if they don’t want to give it to you. Keep saving/investing. Your opportunity to own will come along when the time is right.