Most people with a lower credit score have a particular event occur that changes things, whether that’s a divorce, consumer proposal, a bad debt, injury, or something else. The best thing to do after these events is to remediate as best as possible and then start rebuilding. So how do you rebuild, especially if you want to buy a house?

1.     Have (at least) 2 Items Reporting

You cannot rebuild your credit if you have nothing reporting to the credit bureau. Consumer proposals and bankruptcies consolidate debt and wipe out anything from reporting. With low credit it can be hard to get items reporting again as most companies are going to be hesitant to extend financing to you.  If you do not currently have anything reporting to the bureau a few options to get started are:

-        a pre-paid bank credit card, make sure to research and ask that it reports to the bureau as not all do. With a pre-paid credit card you can put $500-$1000 on it and then use it as per usual, once it's low or empty you can add more money. This begins to build credit as it shows you can make timely payments.

-       A phone account. Most major phone companies will report to the bureau. Although it’s not much the more payments you make on time and in full the better your credit will be

-       Rent reporting. Some landlords and rental companies will report to the credit bureau. Ask if yours will so that you have another payment showing up every month.

If you have 1-2 major accounts (credit card, line of credit, loan, vehicle payment) and a non-major account (phone, appliance or furniture loan) do not take on any additional debt. Adding more accounts can will decrease your score and can make you look more financially burdened.

TIP: do not close old accounts. Mortgage lenders and banks need to see 2 items reporting for 2 years so if you have old accounts you were considering closing, keep them open to assist in your proof of credit worthiness

2.     Payoff Collections

You’d be surprised at how common it is for a person to have a collection listed on their credit bureau. Whether it’s a $5.00 charge for a phone company or a larger ambulance bill many people find themselves with a collection owing. Some people feel it is an injustice that they are being charged and will refuse to pay, although the cause may be justified the means aren’t. Nothing will destroy credit quicker than collections owing, it can take 30-50 points off of your credit score every single month it’s left unpaid. This 100% needs to be cleared off your report in order to start rebuilding.

-       Many people don’t know but you can actually negotiate with collection agencies. It’s recommended to offer them 50% of your debt owing and negotiate from there. It could save you some money and help to get it cleared off of your account quicker.

3.    Set Automatic Payments

Nothing will kill your credit quite as quickly as late payments. Go into your online banking and automate everything that you can. Whether it’s credit card minimum payments, or phone bills. Automate everything to ensure you never forget and the bill is always paid on time.

4.     Lower Balances

Most people don’t know but if you have a balance of over 50% of your total limit report to the bureau it will slowly bleed your credit score dropping it around 5-7 points every month. Try to keep it below 50% and closer to the 30% mark to see your score increase. If your credit card limit is $1000, try to never have more than $300 owing.

5.     Limit Credit Pulls

Many companies fail to disclose that they are pulling your credit but each pull can take around 5-7 points off of your score.

-       Car dealerships are notorious for this, when taking a vehicle for a test drive many companies will ask for your drivers license. What the consumer doesn’t know is they go to the back and often pull your credit. Some people have reported as many as 15 credit pulls on one weekend of test driving. 🤯

Additional Tips:

• Did you know that you can sign up for a free credit report from Equifax? You can do so here. This allows you to see where you're at now, to monitor your report if there is fraud or errors, and to watch your credit grow 
• Most banks and mortgage lenders will offer you the best rates available if your credit score is over 680. 
• The government of Canada has additional information here

Unfortunately rebuilding credit does take time but if you're diligent, make payments on time, payoff collections, and manage how much you use you can see substantial improvements in a short amount of time.