How Can I Repair My Credit?

"I was turned down for a loan because of unpaid bills on my credit report."

"I am self-employed, so I can't get a loan."

"My boyfriend left, and because I co-signed his loans, now my credit rating is bad."

Regardless of the reasons, a bad credit report often means you can't get a loan, or you might even not be able to rent an apartment.

The old adage, "time heals all wounds" is particularly true when talking about credit problems. Except in very special circumstances, a bad mark on your credit report, up to and including filing an assignment in bankruptcy will remain on your credit record a maximum of 7 years. After 7 years information is dropped from your record.

What if you can't wait 7 years?

If you can't afford to wait seven years to have your credit record "clear itself" there are things that you can do to repair your credit record.

Get a copy of your credit report. Find out what is on it. You cannot start addressing the problems if you don't know what they are.

Pay your bills. If a $200 debt on a old credit card is the only black mark on your credit report, save up $200, contact the credit card company, and arrange to make payment. Paying your debts is the most effective way to repair your credit record.

If you cannot pay off your debts in full, consider filing a debt management plan, a proposal to your creditors, or Ontario bankruptcy. While each of these things has a serious impact on your credit report, they are all improvements over a number of individual bad items.

Once the old debts are dealt with, you must repair your bad credit report. Here are some suggestions:

Borrow fully secured money. Secured debts are those that are backed up by some sort of asset or guarantee. The most common examples are car loans or mortgages. If you don't pay, the creditor sells the "security". When applying for this type of loan, credit will generally be granted up to 75% of the value of the underlying security. A variation on this is to have someone co-sign or guarantee your debt. In this case, they will be granting credit to your co-signer, not you. If you repay the loan, your record will benefit. If you default, the co-signor will be required to pay.
Obtain a secured credit card. Placing a sum of money on deposit with a bank and pledging the money as security for the card does this. If you don't make your required payments, the bank will withdraw the money from your deposit and reduce your available credit accordingly.
Borrow for an RRSP. For some reason, banks view people with RRSP's differently. It demonstrates that you're looking towards your future. When you receive your tax refund, use the refund to repay the loan, thereby paying off the debt more quickly then you were required. This will cause a marked improvement in your report.
Borrow when you don't need to. Obtain a small line of credit. Use it to pay bills and then immediately pay off the line. Repeat this process and over time, it will have a marked improvement in your credit report.

The Best Advice:

Pay your bills on time. Don't bounce any cheques. Don't overdraw your account at the bank (even if you have overdraft protection). Show the credit system that you are a responsible money manager and that when you borrow money, it's because you want to, not because you have to. In this way you will you repair your credit and avoid a bad credit report in the future.