If you’re seeking ways to improve your credit score in Canada or address issues on your credit report, we’ll guide you through resolving four common problems. While the solutions may vary depending on your situation and the extent of damage to your credit score, we provide free information on the factors that impact credit scores in Canada—information that some credit repair companies charge exorbitant fees for. We start by addressing common, minor credit issues and progress to tackling more significant challenges.
Missed Credit Card Payments – How is it Affecting Your Credit Score?
Some individuals become worried when their credit report indicates they’ve missed a payment or two on their credit cards. While this may have a slight impact on your credit score, it typically isn’t significant in the grand scheme of things. Occasional mistakes can occur, leading to missed payments or inaccuracies in credit reports.
Having a lengthy, positive credit history is akin to having a few late payments, comparable to a minor scratch on your car door—noticeable yet inconsequential overall. Conversely, numerous late payments on your credit report may raise concerns similar to driving a vehicle with multiple scratches and dents, potentially prompting inquiries from lenders and adversely affecting your credit score.
Can Credit Card Debt Affect Credit Score?
Yes, if you’ve maintained credit card accounts for several years, consistently paying bills on time, yet your credit score remains low, excessive credit card debt may be the culprit. Sustaining balances exceeding 75% of your credit limit signals a concern to credit scoring systems. Such high balances suggest potential financial strain, raising your risk profile and prompting banks to manage and mitigate their risk exposure rather than increase it.
The Ideal Threshold – Maintain Your Credit Score Below 50%
To address this issue, aim to maintain credit card balances below 75% of their limits. Keeping balances below 50% can further improve your score, with the ultimate goal of paying off all credit card balances in full each month to avoid carrying a balance. If you’re grappling with debt and require expert assistance, don’t hesitate to contact us for an appointment with one of our Credit and Debt Counselors. They possess valuable insights and can offer supportive advice and guidance tailored to your situation.
Unpaid Collections Affecting Credit Score
Unpaid collections listed in the public records section of credit reports often result in lowered credit scores for many individuals. These collections may encompass unpaid parking tickets, speeding fines, utility bills, and cell phone charges. Fortunately, once these debts are settled, individuals can request creditors to remove collection notices from their credit reports, with many creditors complying with such requests. If one or two collection items contributed to a low credit score, their removal can lead to an immediate improvement in the credit score, as this is the sole method for instant credit score enhancement, while other methods typically require time.
Work with Creditors to Have a Clean Credit Report
It’s important to note that aside from collections, no other information can be erased from your credit report. Everything else must naturally expire over time. If you wish to remove another debt, you’ll need to fully repay it, request closure from the creditor, and refrain from any further activity. After seven years of inactivity, the debt or credit facility will automatically drop off your credit report. If it remains, you can contact the credit reporting agency to request its removal.
What Happens if I Have Many Late Payments on my Credit Report?
Having numerous missed or late credit card payments doesn’t offer quick solutions for improving your credit score. The most effective method to rectify such damage is by establishing a positive credit history over time. Consistently demonstrating your ability to pay bills punctually will gradually enhance your credit score as records of late payments expire from your credit report.
Reasons Why My Credit Score Drops
Your credit score may decline rapidly due to various factors, such as making frequent credit applications within a 12-month timeframe, utilizing more than 75% of your credit limits, and missing payments on debts reported to credit bureaus. Additionally, filing for bankruptcy or a consumer proposal, obtaining car loans or other types of loans, and financial institutions or credit bureaus conducting credit checks on your account can also impede a favorable credit score.
Fix Your Credit Score Faster
Increasing your credit score in Canada primarily involves using credit responsibly and clearing debts. While focusing on debt repayment and enhancing your credit payment history, consider the following steps to expedite credit score improvement:
- Maintain at least one credit product and manage it responsibly.
- Explore the viability of a Debt Management Program based on your circumstances.
Pay Your Debts Through Our Debt Management Service
You may opt for a Debt Management Service as an avenue to rectify your credit. While not our primary recommendation, if you’re unable to sustain credit card payments, enrolling in a program offering consolidated monthly payments with minimal interest could be beneficial.
By diligently repaying debts within a DMP, you can become debt-free within two to three years. Following program completion, records of all enrolled debts will be expunged from your credit report after two years, a considerably shorter timeline compared to the standard seven years. Additionally, this approach typically yields faster, more gratifying outcomes and leads to higher average credit scores than alternative methods like consumer proposals or bankruptcy filings. Explore further details on Debt Management Programs or consider alternative debt-relief avenues to expedite your financial objectives.
The Best Ways to Use Credit
Maintain an Active Balance on at Least One Credit Card While Paying It Off Regularly
Although it’s tempting to cut up your credit cards when tackling financial issues, demonstrating responsible credit usage is essential for rebuilding your credit swiftly. Keep old credit card accounts active and be mindful of your credit balance.
Utilize a Single Active Credit Card Occasionally and Ensure Timely Payments
Ensure you possess at least one active credit card, overdraft, or line of credit, using it sparingly and paying off the balance periodically. This practice showcases responsible credit utilization, particularly with higher credit limits.
Consider Obtaining a Secured Credit Card to Foster Credit Growth
If you’re unable to qualify for an unsecured credit card, explore the option of acquiring a secured credit card from your bank or credit union. This involves depositing cash equivalent to your credit limit as collateral, aiding in credit building. With responsible usage, you may eventually transition to an unsecured card, enabling the return of your deposited funds.
