How To Rebuild Credit in Canada 101

Your credit score is the golden ticket to qualifying for things in life that can affect your personal finances.  Whether it be a credit card, a car loan, interest rates, or even a mortgage, your credit score is the primary factor of consideration that lenders look at to make a decision. Recently in Canada, the amount of consumer debt has become a crisis and it makes it difficult for people to have the financial freedom they desire. Relative to the rise in consumer debt, credit scores are also taking a direct impact and the ability to qualify for things that affect your personal depreciate. According to Statistics Canada, the amount Canadians owe relative to their income ticked high in the fourth quarter of last year as the growth in debt slightly outpaced income growth. Credit market debt, which includes consumer credit and mortgage and non-mortgage loans, totaled nearly $2.21 trillion in the fourth quarter. So, how do you rebuild your credit in Canada? Keep reading to find out!

Credit Score Scale - Forest City Auto Loans

So, What Is A Good Credit Score?

Excellent Credit: 800-900 – Booya! You have excellent credit. The sky is the limit.
Very Good Credit: 720-799 – You have very good credit. Keep up the healthy financial habits!
Good Credit: 650-719 – Considered good to lenders. You may not qualify for some rates, but keep your credit history strong!
Fair Credit: 600-649 – This is fair credit. History of repayments will be significant to your financial responsibility.
Bad Credit: Below 600 – Your credit needs some work. Read further to see how you can start rebuilding

What Can I Do To Re-Build My Credit in Canada?

There are many different things you can do to re-build an excellent credit history. Before we dive deep into the different things that can help you achieve a perfect credit score, it’s important to note that patience is a virtue. Getting a perfect credit score takes time and dedication. Pay close attention to your situation, set financial goals, and stay patient. 

01. Set Financial Goals

The first thing you should do on your credit rebuilding journey is set personal financial goals. Doing this will help you cut out bad spending habits, assist you in identifying what part of your personal finances need work, help you stay focused on your financial objectives, and guide you through your rebuilding phase. By setting sharp, clearly defined goals, you can measure your financial situation and take pride in the achievement of those goals. Setting financial goals will also raise your self-confidence, as you will quickly recognize your ability to achieve financial goals you’ve set.

02. Monitor Your Credit Score

Once your financial goals are set, it’s important to measure the impact of your execution. By monitoring your credit score you’re taking a quantitative approach to success! After every month, we recommend pulling a credit report to see how you’re progressing on your journey. There are free resources out there like Credit Karma and Borrowell that will pull your credit report without affecting your credit score and they’re also free! If you see your credit score rising, keep up the great work! If you see it going down or fluctuating, re-evaluate your flow of income and see what you need to improve on. This is a very important factor when rebuilding your credit in Canada!

03. Change Your Spending Habits

Changing your spending habits can be the golden ticket to a successful credit rebuilding journey. Prioritize what needs to be paid first and save the festivities for last. Creating a budget can also help you change your spending habits, again, with a quantitative approach. With this tip, you’ll need to have strong will power when it comes to distinguishing your needs versus your wants.

04. Make Your Payments On Time

Your payment history is the most significant factor that affects your credit score and it’s also one of the hardest things to get a grip on. If you’re in a sticky situation and can’t afford to make payments on time, contact your lender(s) or creditors to see if you can come up with an arrangement that works best for both parties. If you’re a person who forgets often about payments, setup automatic withdrawals from your bank account and let the technology do the work for you. We recommend staying aware of your cash flow when setting up automatic payments to avoid any NSF Fees (Non-Sufficient Funds), if there aren’t enough funds in your bank account.  

05. Obtain A Secured Credit Card Account

A secured credit card can be very helpful for people with bad/short credit escape the paradox. A secured credit card is backed by a deposit that you make when you open the account. So let’s say you open an a secured account with a $500 deposit, your credit limit then becomes $500. This lowers the risk from a lender/creditor because if you miss a payment, the lender/creditor can take your deposit. But what if you make your payments on time? Eventually you’ll get your deposit back and some lenders may even upgrade your account to an unsecured account. 

Patience Is A Virtue

Rebuilding your credit in Canada can be a tough process but it is achievable. It all starts by setting financial goals, which will keep you focused on achieving financial objectives. Remember, monitoring your credit score helps you measure how your journey to success is coming along. Bad habits are the culprit when it comes to will power. Change your bad spending habits to good spending habits and in the long run you will see the financial differences. Always remember to make your payments on time because this is the most crucial element of a excellent credit score. Patience is a virtue when rebuilding credit which is why we recommend starting with a secured credit card account. These are just 5 ways you can start rebuilding your credit. If you’re interested in more strategies, don’t be afraid to contact us today!

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