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.