Credit Rebuilding Basics, Part 5 — Fine-tuning and Monitoring

If you have already taken the appropriate action to rebuild your credit, you should be well on your way to a higher credit score. Now it’s time to fine-tune and build on what you have already accomplished.

In this series’ previous blog posts, we’ve provided you with all the background and action steps to rebuild your credit. Now it’s time to fine-tune and build on what you have already accomplished.

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

Ideally for credit rebuilding you should ask a professional bankruptcy trustee Halifax to guide you with tips. However, here are a few steps that can help you in getting started with your credit rebuilding process.

1.  Make More Than Minimum Payments

Making payments in addition to the minimums required on your credit cards and loan accounts has a couple of benefits.

First, you reduce the amount of interest you pay over on the loan or credit card.  The other advantage is the credit utilization ratio will be lowered and positively impact your credit score.

Take this step even for loan payments with regular, recurring amounts.  For example, if your loan payment is $125 per month, but you instead pay $130 per month, it will boost your credit score slightly.  The more you can pay the account balance down, the better.

2.  Keep the Overall Size of Your Credit Portfolio Manageable

Balances on too many credit cards, retail cards and loans at the same time will cause you to lose points on your credit score.  You will appear to be a greater risk to the lenders.

A general rule of thumb is that if you have more than three credit cards with balances, two retail card balances (such as a Canadian Tire card) and several loans, then your credit profile may be getting too large.  Look at paying off some of the smaller balances while keeping the cards open.

3.  Do Not Close Credit Accounts for Promotional Offers

Lending is a very competitive business, and there are always offers to transfer your credit balances from one credit card to another.  If your credit is already good, doing this makes sense.  You may be able to reduce your total interest payments by applying for a card with 0% interest for a year on balance transfers.

However, if you are rebuilding your credit and you decide to do this, you need to keep the old accounts open and use them periodically.  Remember that the longer you have an established credit history with one company, the more powerfully this reports to the credit bureaus.  You want to avoid actions that will reduce the average age of your credit accounts.

4.  Obtain and review your credit report once or twice per year

As long as you are in the active credit rebuilding process, obtain and review your credit reports once or twice per year.  Be vigilant about correcting any errors that may show up and remove old, closed items once the time limits for their reporting end.

5.  Check Your Credit Reports After Your Consumer Proposal or Bankruptcy is Completed

Once you complete your consumer proposal or your personal bankruptcy is discharged, it is essential to review your report again. Wait for 8 – 12 weeks as it takes a bit of time for the Public Reports section of your report to update, and the lenders also need time to reflect the change in your status accurately.

If you filed a consumer proposal, this is the time when you can ensure that your lenders and bureau reports are showing a ‘7’ rating vs. a ‘9’ rating. The act of completing your consumer proposal and having the proper notations in place with the credit bureaus on your report will create a significant boost to your credit score, so make sure you look after these critical details.

6.  Stay on Top of Your Budget!

Stay on top of your budget every month!  Budgeting and credit rebuilding are closely linked. Your budget guides how much credit you can safely be applying for and managing, especially when you are looking to add installment credit such as new loans (vehicle loans) to your credit portfolio.

Ensure that you do not ‘poach’ money from your emergency savings to pay for credit products.  You don’t want to get into a cycle where you are using credit to pay for unexpected bills that arise.

Final Thoughts on the Credit Rebuilding Process

Credit rebuilding is your responsibility, and you cannot rely on the bureaus or the lenders to do this work for you. The credit reporting system is highly efficient and effective at reporting negative items very quickly. However, neither the lenders nor the credit bureaus are interested in doing any of the credit repair and rebuilding work we’ve discussed here on your behalf.

Although the process of credit rebuilding is straightforward, it does take persistence, patience, and consistent attention over several years, especially if you have filed a consumer proposal or personal bankruptcy. Beware of any companies trying to sell you ‘quick credit rebuilding’ services. These are often scams—the credit bureaus have set their reporting formulas to ensure that someone cannot quickly rebuild their credit. After all, they and the lenders want to see a sustained and stable track record of using credit responsibly, and that takes time.

Remember, you can do it!  It’s critical for your long-term financial well-being—take the time and effort to do the work, and you will reap the rewards with a positive credit report and score.