The Bank of Canada just announced the new ratio of household debt to income is at 165%. That means people are spending 65% more than what they earn. Poor credit is a concern to consumers who overspend and have poor bill payment history (either do not pay on time or have too many debts). It’s no wonder bad credit is becoming more common among Canadians.
Your credit report is a “snapshot” of your credit history, and understanding your credit report is the first step in learning how to improve it. If you need to improve your credit score, here are some ways to do it:
Always pay your bills in full and on time. It’s common sense. The reality, however, is many Canadians spend beyond their means and take on debt just to get by. If there is not enough money at the end of the month to pay a bill in full, the minimum payment is made each month or the bills go unpaid. Debts get carried over month to month and such payment history is reflected on the credit report.
Do not spend more than your credit limit on your credit card. It is best to keep your balance well below the limit. The higher your balance, the more impact it has on your credit score. If you have difficulty paying your bills, you may want to lower your credit limit.
Reduce the number of credit applications you make. If you have too many creditors inquiring into your credit in a short period of time, it may reflect negatively on your credit score. It looks like you are spreading yourself too thin by requesting too much credit.
Make sure the information on your credit report is correct and up to date. To clear up any errors, you need to contact the credit-reporting agency (Equifax or TransUnion). The credit reporting agency will contact the financial institution that reported the information to investigate. If the financial institution agrees that an error was made, the credit reporting agency has 30 days (except in the province of Alberta where it allows 90 days) to correct your credit report. You can always contest what a financial institution reports on your credit report and you can explain your situation in the form of a statement to the credit reporting agency.
If you have tried to manage paying your debts on your own but feel assistance is needed to do it efficiently, credit counseling from various non-profit and for-profit companies is available to all Canadians. While you are on a debt management program, your credit report will reflect that you required assistance. Depending on which credit reporting agency you use, this information will stay on your credit report for up to 3 years from the date the debt was paid in full. For example, TransUnion shows credit counseling on a credit report for 2 years (from the date debt is satisfied) in all provinces, and Equifax shows 3 years (from the date debt is paid) in all provinces. Now consider if a person would choose the route of bankruptcy. A credit report would show a bankruptcy for up to 7 years (depending on the province in which you reside), and again depending on the credit reporting agency your credit report is generated from.
Having a poor credit score is not the end of the world. If you take steps to manage and pay off your debt you will eventually improve your credit score, but this will take time. Along the way you will be offered opportunities to increase your credit by way of credit card applications from credit card companies and creditors. Before you accept anything, review your finances and consider your spending limitations. Your poor credit likely resulted from owning too many credit cards and spreading your finances too thin. Don’t make this same mistake. Take on only what you can successfully manage. Ask yourself, do I really need 3 credit cards? Can I get by with 1 or none? Be smart with your money and have a good credit report/score to show for it.
Continue to check your credit report regularly to ensure it is always accurate and up to date.
For more information about credit reports, credit scores and how to manage debt, call OCCA Consumer Debt Relief for a free financial assessment toll free at 1-855-873-6222. You can visit us online at www.occa.ca. Be in control of your finances and your debt!
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