Repairing a Damaged Credit Score | Guest Author: Beth Ann Bone
Debt problems don’t always occur as a result of careless spending. An illness, death of a spouse, marital breakdown or unexpected job loss can result in a sudden income drop. When battling such life events, debt can accumulate and snowball. It is quite normal to forget to pay your bills on time. You might start carrying larger balances on your credit cards or rely on your line of credit to make ends meet. After even a few missed or late payments, your credit scores will start to suffer. If left to continue over a long period, your credit scores will definitely take a tumble. At any stage however, you can take solace. Repairing a damaged credit score is quite achievable, even in the most dire of circumstances. You simply need to follow a few basic rules.
Credit Counselling
The first step is to develop a budget and plan to clear your debts. That, along with good bill payment habits, demonstrated over time, will bury poor ratings and allow your credit scores to improve. You need to be unwavering and consistent with these goals.
Understandably, this can be an overwhelming task to manage on your own. This is when the services of a credit counsellor becomes invaluable. A credit counsellor steps in as your coach and motivator, helping you set a budget that is right for your lifestyle. A credit counsellor can also facilitate consolidation of multiple debts, negotiate manageable repayment schedules with creditors, reduce the interest penalties and keep you on track with your plan. He or she will set you up with the right tools to monitor your budget and visualize your progress.
Shared Debt
36% of people in relationships rarely or never discuss their finances! If you share credit cards with a spouse, then repairing your damaged credit score will depend on how both of you behave with your shared debt. It is important to have meaningful and regular conversations about your finances to align your goals. Schedule monthly finance meetings to ensure you both understand the landscape and remain on track.
If you cosigned a loan with your children to give them a leg up, then a missed or late payment on their part will also impact your credit score. Consider options for removing yourself from the risk. If your children have built up their own credit reputation, it might be time to renegotiate the loan, so they take on the full risk themselves. If they are not there yet, then you must have a frank conversation with them about your situation. Their payment habits impact you. Consequently, it is a good idea to schedule regular check-in meetings with your children to review their payment progress and behaviour, until the loan is paid off.
Negative History
Equifax and TransUnion are the two major consumer credit bureaus operating in Canada. They compile your credit report, based on information they collect from banks, credit card companies, government institutions, utility suppliers and retailers. You can request these reports from each credit bureau, directly. Private lenders, like Credit Karma and Borrowell, also provide you with convenient insight to your credit scores on an app, updated each month.
You should review your credit report, at least annually. Start with a clean up of your history by asking the bureaus to remove negative actions that are over seven years old. These may include items you have completely forgotten about, like unpaid parking tickets or utility bills that went into collection.
Identity theft is another important reason for checking your credit report regularly. Nothing can be more frustrating than discovering that fraudulent activity has damaged your credit score. Report any suspicious or unfamiliar activity to the credit bureau right away to ensure your access to credit does not suffer.
Credit Card Rules
Cutting up all credit cards is the first instinct most people have, when attempting to repair a damaged credit. Unless your credit counsellor has specifically prescribed this as a solution, ceasing use of all credit cards may be counterproductive to what you are trying to achieve.
Credit cards offer credit bureaus an important picture of your spending and payment habits. You might not want to take this visibility away from them. Switch your focus instead, to on-time payment and your credit utilization ratio.
If you already carry a balance, plan on paying more than the minimum when the bill arrives, with a plan to pay it off in full, as quickly as possible. After that, manage your budget so you can pay the full bill on time, each month. Do not use the entire limit on your credit cards; in fact, plan on keeping your credit utilization to under 35% of the credit limit.
Doing all of this will inform the credit bureaus that you are careful about extending yourself financially and that you can be counted upon to pay your creditors on time. These are the best strategies available for repairing a damaged credit score.
Consumer Proposals & Bankruptcies
A consumer proposal and bankruptcy are legally binding solutions that allow honest but unfortunate debtors to walk away from unmanageable debt. Creditors take them seriously and, as a result, these actions will appear on your credit report with the lowest ratings of either R7 or R9.
For a consumer proposal, an R7 rating will appear on your record for the duration of the term, remaining on file for three years after the settlement date. If you file a bankruptcy for the first time, an R9 remains on your file for six years after the discharge date.
During this time, it is crucial to use credit wisely. Stay within your budget, do not overextend yourself financially and pay your bills on time. Repairing a damaged credit score is very achievable, even after a consumer proposal or bankruptcy.
Repairing a Damaged Credit Score
Your credit scores hold a lot of power. They precede your reputation when it comes to banks, landlords, some jobs and purchases like a car or a monthly cell phone contract. Poor credit scores can impact your access to credit and bring obstacles to everyday life in very real ways. Credit bureaus rate your credit worthiness based on your historical use of credit and repayment. Fortunately, it is possible to repair a damaged credit score. It requires you to be patient and dedicated to staying the course.
Beth Ann Bone, 
a Senior Financial Administrator and Insolvency Counsellor, is guest author for Family and Credit Counselling Services, a blended not-for profit community-based agency offering debt counselling & management as well as family/individual support services within York region.
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