- It's ALL IN YOUR NUMBER - Reviewing your credit report annually is one of the best credit practises everyone can employ. Many people don't know that they can get their credit report FREE. This is via snail mail (Canada Post) so it does take a bit longer but if you don't have a credit card this will work for you. If you do have a credit card you can request your report and pick the FICO score option which will actually tell you what your score is.
- STOP THE OVER-APPLYING TRAIN RIGHT NOW - It is a little known fact that enquiries that happen when you apply for credit will reduce your credit score. People that have lower credit scores often just don't want to give up and will apply at many different places hoping that a different lender will help them. This does NOT help the situation. The more you apply - the lender sees these as "I NEED MONEY. I KEEP ASKING FOR MONEY. THEREFORE I DO NOT MANAGE MONEY WELL". This moves you up on the risk scale with them and your BEACON goes LOWER. If you are re-establishing credit it is important to be informed about the types of lenders that will APPROVE you. One enquiry is usually enough for something like a secured credit card referenced in the next TIP.
- LOCK DOWN A SECURE CREDIT CARD - There are credit card companies tailored to consumers with credit skeletons in their closet. They are select and do charge a higher rate and sometimes annual fee for their services. This is due to the risk they see with someone having poor past payment history. In order to get your credit fixed you need GOOD payment history which a secured credit card can do... establish new history of habits.
Here's how a secured card works:You apply for a $500 limit - The lender requests cash security usually 120% of the limit which they hold and pay interest (usually the equivalent of a daily interest savings account so we're not talking 2% - lower). They hold that as security so that if the consumer does not meet their obligations that are 100% guaranteed their full money back plus interest. THIS IS YOUR GET OUT OF JAIL FREE CARD! Use it wisely! Do not use more than 50% of the limit and set it up for an automatic payment of the minimum so there is no possibility of forgetting. Pick one small expense a month and use it strictly for that. Many people are so "gun shy" with credit cards they use it for groceries and go home just to pay it off in full online. This is your chance to change old habits. All payments MUST BE on time. NEVER EVER go Over limit. That's as bad as a late payment.
- REVIEW YOUR SCORE/Apply for VEHICLE LOAN/SECURED LOAN - After about 6 mos to a year (depending on the scale of your skeletons) you should be able to apply for a loan for a vehicle. This is by far, the easiest, fastest way to improve your score and possibility for lenders approving you for things like a mortgage sooner! Some people will disagree with this due to the rates of interest car lenders charge (15-29%) but I believe if you have money saved (with no credit payments this shouldn't be an issue for most) you should have a healthy down payment for a vehicle and be able to look at a small loan for $15,000 - $20,000 assuming you meet other affordability/job guidelines. By borrowing for a vehicle are increasing your HIGH CREDIT showing on your credit report and lenders will be more apt to extend a mortgage and other important credit sources once you have shown timely repayment on a loan of this size. The key is moderation.
- STAY THE COURSE - It's been well over 21 days so your habits must be changing. By now you are receiving those pesky notices in the mail "Approved", introductory offer, "Call now"... blah, blah, blah. SHRED THEM and don't look back. Keep your number of accounts to a minimum. You have earned the privilege of this fine looking score now all you need to do is keep paying on time, keep your limits well below 70% and keep a watchful eye on that report annually!
Tiffany Clark is a mortgage broker in Grande Prairie, Alberta and the owner of Elements Mortgage Inc.