If you are like many Canadians, you might be in a situation where your credit score is low and you are unable to get approved for a loan.
Although this is a common problem among approximately 15% of Canadians, you can repair your credit score with patience and discipline.
CarLoans411 has been helping communities around Canada for over 10 years get back on track when it comes to fixing bad credit scores. We do this by setting you up for success when it comes to getting approved for an auto loan. Many Canadians are seeking bad credit car loans because they simply have no other choice and are backed up against the wall. Sometimes these “bad credit car loans” come with interest rates as high as 29.9%.
Table of contents
- Pay your bills on time.
- Pay off your debts as quickly as possible.
- If you cannot pay off the entirety of your bill at once, make sure you pay at least the required amount.
- Diversify the types of loans that you carry.
- Limit the number of inquiries or applications for credit.
- Make sure there are no errors.
- Maintain old accounts, rather than closing them down.
- If you are holding a balance, try and keep it lower than your limit (50%).
- Ask your creditor to remove late payments from your history if you’ve been a good customer.
- Use automatic payments to your advantage
Unfortunately, this is the reality of many Canadians stuck in a bad credit nightmare. The bright side is, if you broke it, you can definitely fix it. The key is to stay positive and disciplined. When it comes to your credit score, nothing is irreversible and if you follow these simple steps, you can fix your credit in a short period of time.
Pay your bills on time.
This is easily the most important factor for repairing your bad credit history. If you can commit to making your payments on time, this will be the fastest path to recovery. Creating a payment calendar can help if you’re finding that you lose track of your bills, and when they are due.
Pay off your debts as quickly as possible.
If you have long-term debts where the balance is hardly moving, creditors will see this as a risk. It’s better to pay off older debts and get them out of the way. Why would they lend you money, if you haven’t paid off a loan from 10 years ago?
If you cannot pay off the entirety of your bill at once, make sure you pay at least the required amount.
If you cannot pay off your credit card, phone bills, or utility bills all at once, it’s better to make a partial payment or the minimum payment required rather than not paying anything at all. Although this will help, it’s still not an ideal situation. For example, making the minimum payment on a credit card will often just cover the monthly interest if you have a high balance. At this point, you are just wasting money to keep afloat.
Diversify the types of loans that you carry.
If you are able to mix up or diversify the types of loans you carry, and successfully make payments on them, it will show lenders that you are responsible and able to handle a mixture of debts. Having revolving credit such as your standard credit cards, and instalment credit such as a car loan, are two prime example of this.
Limit the number of inquiries or applications for credit.
If you are constantly applying for credit cards, you run the risk of getting penalized. For example, if you get rejected by five different creditors within a week’s time, you come off as high risk and the act will lower your credit score. The lost points from applying for a credit card will come back eventually, but if you’re suffering from poor credit already, every point counts and can be a critical factor when trying to get approved.
Please note, there is a difference between applying for credit, then seeking information about your own credit report.
Make sure there are no errors.
If you think the credit system is perfect, guess again! Human or computer error can account for incorrect info appearing on your credit report. This does happen, so that’s why it’s a good idea to check your credit report every once in a while. Phantom errors are more common than you’d think, and you do have the ability to dispute misinformation appearing on your credit report. Sometimes the issue will not get rectified immediately, but it is important to identify these issues as fast as possible.
Maintain old accounts, rather than closing them down.
This is a good little trick that not many people know about. Have you ever been in a situation where you paid off your credit card, or line of credit, then shut it down in fear that you’ll tally up that balance again? It’s fairly common, but if you can discipline yourself to keep your account open, rather than shutting it down, you can regain lost credit points quickly.
It’s a good idea to keep these accounts open and use them sparingly to make small purchases, and then pay them off quickly. It tells a creditor that you are responsible.
If you are holding a balance, try and keep it lower than your limit (50%).
This is another good tip that can help you improve your credit score quickly. Keeping your balance below the 50% threshold is ideal, and if you can get it to below 25%, then even better. Ideally, you would have no balance at the end of every month, but realistically, keeping it below these markers will set you on the path to recovery.
Ask your creditor to remove late payments from your history if you’ve been a good customer.
Sometimes a creditor will have a sympathetic view towards your situation, and remove late payments from your credit history. If you have a solid transaction record, it is possible to have one or more of these stains removed.You might also be able to negotiate a deal where if you make 10 consecutive payments in a row, they remove any NSF or late delinquencies from your account. Speaking from personal experience, this happens all the time. Being a previous employee at TD Auto Finance, it was very common to see customers call in to negotiate these “good will” terms which would be accepted contingent on a flawless payment history going forward.
Use automatic payments to your advantage
Out of sight, out of mind. This is a good expression when it comes to paying your bills and setting up an automated payment schedule. For people who live a fast-paced lifestyle, have children, or work a lot, it is easy to forget to pay your bills on time. Pretty much all financial institutions have the ability to setup automatic payments, which come out the same time every month. This is convenient because it saves you time, and enables you to make your payments on days when you get paid, or days when you know you’ll have extra cash available.