Credit Rebuilding Basics, Part 3 — Reviewing and Repairing Your Credit Report

Part 1 and Part 2 of this series on credit rebuilding have explained what your credit score means, who uses it, and how the credit bureaus establish your score. Now let’s get into what you must do if you want to rebuild your credit.

The first step, before any rebuilding, is to repair your credit. Why? If there are negative items or mistakes on your credit reports, you must do what you can to address those items before spending any money on new credit products or services. If you don’t, you may be wasting your time and your money!

Credit Rebuilding Series:

Part 1 – What is Your Credit Score and Why is it so Important?

Part 2 – How Is Your Credit Score Calculated?

Part 3 – Reviewing and Repairing Your Credit Report

Part 4 – Rebuilding Your Credit

Part 5 – Fine-tuning and Monitoring

To repair your credit, you must first find out what your credit report is saying—that’s the starting point. You should consult with a bankruptcy trustee in Halifax for financial advice in this regard.

1. Obtain Your Credit Reports

Apply to both of the two credit bureaus in Canada, Equifax and TransUnion, to receive your credit reports. You need to obtain both reports.

Some lenders may only report to one of the bureaus, and each of the lenders will typically use one of the bureaus as a starting point for their review of your credit request.

Both bureaus also have forms to fill out to fix any errors. It is a small expense but you need those to move on so please follow the links and get your reports.

2. Review Credit Reports

Errors can easily show up on your report—estimates are that at least 20% of credit reports have errors in them, and if you have had issues with credit in the past, then the likelihood of mistakes is even more significant.

These errors can occur because of simple clerical errors, or they may be a sign of identity theft or fraud. Errors can also result from decisions the lenders have made about how they interpret your situation, particularly if you have negative items on your report or have filed a proposal or a bankruptcy. Pay attention to the following items:

• Ensure your personal history is correct. There will be a record of your residences going back several years—these periods will vary by Province and by the credit bureau. Ensure all of your residential information is accurate and that there is no confusion with other people whose names are spelled similarly to yours.

• Check and double-check all of the information about your various credit accounts. You need to ensure that your account information is accurate, including who is responsible for the account, the total amount authorized, the current amount owing, and the payment history. Any information about late payments, payments sent to collections, and the account’s current status must also be correct.

• Examine the Public Records section of your credit report. Although errors in this part of the credit report are rare, you need to address them if they are present. If you have filed a consumer proposal or personal bankruptcy or have had any court judgments, there will be a notation in this part of your credit report—make sure it is accurate.

• Look for unauthorized or old credit inquiries that have shown up on your credit report. You can request the removal of those old inquiries. They are supposed to drop off automatically, but they may not—it is always best to be proactive in dealing with your credit report and not assume that the lenders and bureaus will look after these items for you.

• As you review your credit reports, be especially vigilant for any signs of identity theft. The presence of accounts on your report that you did not sign up for is a good indication that you may be a victim of identity theft.

Credit reports can be a little confusing, especially if you have never looked at one before. For a complete explanation of a credit report, have a look at the Government of Canada’s Guide.

Both credit reporting agencies have toll-free numbers you can call to get an explanation of anything that is confusing on your credit report. However, do NOT expect to make any changes over the phone. The only help you can expect from the bureaus is to clarify what the lenders have reported.

3. Repair Your Credit

Credit repair is (a bit of) a pain! You have to write to the bureaus and wait for their response—there is no easy way around this. The bureaus only accept change requests in writing.  If you try and apply for new credit without finishing the credit repair step, you will likely be wasting your time.

The steps you need to take to repair your credit will depend on your unique situation.

Address Bad Debts or Delinquencies

If you have poor credit and have NOT filed a proposal or a bankruptcy, then your credit situation is almost certainly a result of bad debts, delinquencies or a history of missed payments.

You MUST address any bad debts or delinquencies on your credit report before taking any other steps. Contact the creditors and make arrangements to resolve these debts in one way or another. You can see if the lenders will negotiate with you or if you need to pay the debt in full to settle the debt. Make sure you request that the creditors notify the bureaus of the settlement arrangement once completed.

If you filed a consumer proposal, then you have dealt with your debts. However, many of your creditors will report the consumer proposal as a bankruptcy. When this occurs on your credit report, you can request that the bureaus change the reporting, so each account says ‘Filed a Consumer Proposal’ rather than ‘Filed a Bankruptcy.’

However, many lenders will report accounts included in your consumer proposal as a ‘9’ rather than a ‘7’ on your report. Although you can request the change in status from a ‘9’ to a ‘7’, you are unlikely to be successful as long as you are still making payments on your consumer proposal. Once you have fully paid your consumer proposal, you can have the ‘9’ or bankruptcy rating changed to a ‘7’ rating for each of the debts listed in your consumer proposal.

If you filed a bankruptcy, credit rebuilding begins once you have been discharged from your bankruptcy and your prior debts officially released. You should still check your credit report to ensure that all of the debt you took into the bankruptcy is reporting accurately and that there are no other errors in other sections of your credit report.

Catch Up on Missed Payments

If you miss any payments, make them up as soon as possible. Missed payments have a significant adverse effect on your credit score. If your history with a lender has been good and you have only missed one payment, consider writing to them and asking them to reverse the negative report to the credit bureaus—this is known as a ‘goodwill adjustment’—your credit score will thank you!

Remove Old, Closed Accounts

Many credit reports will have older accounts that have been closed for several years. Although these accounts are supposed to automatically drop off after a preset time, usually six years from the last time they reported, this may not automatically happen. If your credit is damaged, you must remove these older, closed accounts as soon as it is allowed. By doing so, new, post-bankruptcy or proposal credit accounts will have a more significant impact on your score.

Ensure Credit Limits Have Not Been Reduced

In certain circumstances, a creditor may reduce your credit limit on an account. If they do this, your credit utilization ratio may rise above 30% and negatively impact your score. Please pay attention to your cards’ credit limits and any card companies’ notices that they have changed your credit limits. Contact the lenders to get the limits raised or pay the cards down, so your credit utilization ratio stays below 30% if possible.

Congratulations! If you’ve completed the above steps, you’ve done the part of credit rebuilding that’s the least fun.  Now you are ready to begin the more exciting work of building your credit score, which is the focus of the next article in this multi-part blog series.

It’s still going to take time and some attention, but once you put a few building blocks in place, the rest of the journey will be easier and more rewarding.