Dec 16 2007
Canadian Credit Repair - Part I
Information on Canadian Credit Repair is difficult to find, and so I figured I’d put together a small primer for those seeking information on the topic.
Step 1: “Know thine credit“.
If you’ve no credit, bad credit or you simply don’t know then it’s time to sit down and find out just what the credit bureaus (or Credit Reporting Agencies) have on you. The three credit bureaus in Canada are Equifax, Transunion and Northern Credit. They are required to provide you with a free copy of your credit report if you request it in writing.
By mail the reports take 2-4 weeks to arrive, and the information is presented in different formats by each bureau (although the core information remains the same). You’ll want to carefully review the information for accuracy, and return the attached “dispute” forms if any inaccurate entries are discovered (I’ve found Transunion is much more efficient in the dispute process than Equifax, and I didn’t even bother with Northern Credit as they really had no usefull information about me).
Outstanding legitimate debts should be settled as quickly as possible, and any agreements with the creditor (or their agent) should be made IN WRITING. Verbal promises of removing the negative entry from your credit report are worth the paper they are printed on.
Negative entries will typically “purge” from your credit report six years after the default date. Time is, ultimately on your side.
Your FICO score is absent from the free credit reports, but let’s worry about the content before we start chasing arbitrarily assigned numbers rating you.
Step 2: “Are you ready?”
There is no point embarking on this journey if you’re not ready to exercise responsible use of your credit. Credit repair/establishment takes time, and faltering merely resets the clock. The most essential element here is knowing what you can afford to spend and ensuring that you recognize credit as “credit” and not as “available funds”. Resist the temptation to “max out” any new lines of credit, and pay close attention to the “fine print”, as the options listed below come with significant fees and interest rates.
The most important element here is you.
Step 3: “Establish positive credit entries”.
Credit Cards: If you have a relationship with your bank you may be able to obtain a low-limit credit card with no deposit (depending on your specific credit situation). If they are unwilling or unable to issue you a card then you may have to obtain a “secured credit card” where a cash deposit is held by the issuer against the credit limit assigned to the card. Not all banks offer secured cards, but don’t fret, there are other options:
- Capital One Secured Mastercard (Deposit $75-300).
Annual fee of $59 and an interest rate of 19.8%. - Horizon Plus Secured Mastercard (Deposit $500-25,000).
One time setup fee of $49, Monthly fee of $5.95 ($71.40/year) and an interest rate of 19.5%. - Hometrust Secured Visa (Deposit $1,000 - 10,000).
One time setup fee of $39, Monthly fee of $7.50 ($90/year) and an interest rate of 24.99%
These cards are expensive (at between $59-90/year) in service fees alone, and charge a steep interest rate, but they provide you with the opportunity to demonstrate responsible use, and are reported to the Credit Bureaus. Conventional wisdon has it that you should use them for small purchases each month, paying the balance off as each statement is received (to avoid paying interest). As secured cards report the credit limit on your credit report you should ensure that you never exceed 25-30% of your limit.
Responsible use of these cards over a period of time should not only significantly improve your credit score, but may allow you to qualify for a more conventional credit card with no (or much lower) fees and lower interest rates. Beware however, responsible use of this new credit is still essential.
Good post.
One more thing to consider is “Store cards”.
Some department stores will give cards to people with “Less than perfect credit” this too will count as positive credit.
I’ve found that they often don’t charge nearly as much interest and, who couldn’t use a Home-De-Pot card.
Thanks man!
Store cards should probably be included, but I’m having trouble getting answers as to how some of this stuff works in Canada.
Some say that too much consumer credit drags your fico/beacon/whatever score downward, and balances on store cards (which typically have a higher interest rate than conventional credit cards) hurt your credit/debt ratio. Also cancelling these cards later on may also hurt your score,.
Straight answers would be good, but I figured I’d stick with the more generic suggestions for fear of giving people bad advice.
Besides, Home-Despot cards would be bad, there is WAY too much shiny on those shelves!
I’ve spent years in debt, and took the Dave Ramsey challenge a few years ago to get out. Unfortunately poor employment opportunities over the last 2 years caused me to go back in. My advice if you’ve got debt is to get the hell out. Web search Dave Ramsey’s name and get into a FPU class.
Of course if the objective is to buy a house then by all means build credit, but be able to pay it off quick if need be. Those payments are a boat anchor chained to the neck of anyone swimming the seas of finance!
Thank Christ for the Estonian Credit Union. I got my credit report and it was shot just from a few late (120 day) payments on a CC. So I told this to the loan woman at the ETCU, and they still gave me a mortgage.
Getting your hands on real estate goes a long way towards good credit. It’s the magic word, collateral.
Thomas: I agree. Debt’s a bad cycle, and easy to screw up. I damaged mine a few years ago and am still putting things right. Both Lisa and I are on the same page here, and agonize over our collective (not including the mortgage) $1300 in consumer debt. We shouldn’t, as we do have savings that cancel out that debt, but we’ve both had excessive debt in the past, and are anxious not to repeat the cycle.
My concern with credit repair was the inevitable renewal of our mortgage, and ensuring that we don’t get dinged with a few extra points because I failed to make the effort to shoot for a higher score.
We have a few years before our mortgage is due to be renewed, so I’m not overly concerned but figured I’d share the information I’d gathered with those thare are in a similar situation.
It comes back to emergency planning, we’re constantly asking the question “What if the circumstances dramatically change?” and conducting our finances accordingly.
The credit is handy (our new washing machine was purchased on credit we already had) for emergencies, but not to be mistaken for “available spending” which, I think, is where most people fall into trouble.
Theodore: I love the Estonian Credit Union, haven’t tapped them for our mortgage (we’ll likely be refinancing through them when our current mortgage is up for renewal) as with my less than stellar credit we felt it was best to go through a mortgage broker rather than generating a few dozen hits on out credit shopping around.
I love the ECU simply because when I have a problem I talk to a human, often the same human, who either gives me an answer or gets someone who CAN give me an answer. No drones, no automated help lines, no recitation of corporate policy…
I couldn’t possibly go back to a big bank now.
I already had to renew once, with Brenda’s credit frozen due to lack of payments on her student loans. They didn’t even check for the renewal, just gave us 1.5 points lower than their posted rate. Outside of mortgage, our collective debt hovers around $4000 not including student loans and parental loans.
Watching Oprah et al, that’s apparently not bad. So I wouldn’t overly worry about $1500. We’re not the types to have 4 credit cards with 5000+ limits all maxed, with car and furniture loans. God bless hand-me-down furniture and vehicles.
I have never owed more than $200 to my Eesti credit card, and Best Buy rejected me. God I’m good!