How to repair your credit score

Use these tips to improve your credit without cutting up your cards

By Katharine Robertson, Toronto Star

Is a bad credit score preventing you from getting approved for a mortgage ?

Don’t cut up your credit cards yet. According to experts, demonstrating that you can use a credit card responsibly is one of the ways to improve your rating.

“It’s kind of like (how) the best way to get a job is to already have a job, ” explains Douglas Hoyes, a licensed bankruptcy trustee and a founder of Hoyes, Michalos & Associates.  “I don’t want to hire you if you’re unemployed, but if you’re working already then I know you’re good, because someone else has already decided that.”

But before putting more purchases on your card, Hoyes advises that you first get a copy of your report. For about $50, credit bureaus Equifax  and TransUnion Canada  will give you your report instantly online. But if you’re willing to wait for mail, the report is free.

Credit bureaus are keeping tabs on more aspects of your life than you may think: every loan, bill, even the number of times you’ve moved, is entered into a mysterious formula that creates your credit score. And that score reflects how financially reliable  you are.

Heather Battison, senior director responsible for consumer education at TransUnion, says it’s fairly easy to identify what is bringing your score down. It could be an unpaid bill, in which case it’s important to pay off any outstanding debts as quickly as

possible. It could also be a matter of having too many credit cards, in which case it’s again important to trim down the excess. Once you’ve addressed the problem, however, it’s time to start building up that evidence of reliability again.

If you’re unable to get a credit card, consider getting a “secure” card, not to be confused with a pre-paid card such as the one available at financial institutions like MoneyMart, he says. With a secure card, clients who can’t get a conventional credit card as a result of their history or score put down a deposit that matches their credit limit, as a kind of collateral.

Obviously, it’s important to pay off your balance in full each month to clearly indicate that you can be depended on to borrow money. Cheryl Longo, executive vice-president of CIBC card products, says that in order to manage those payments, it’s a good idea to use only a small portion of the credit limit. Online banking alerts can also help a client manage their payments and even better, pre-authorized payments will simply take that money right out of your account on time each month.

Longo says that within three months, secure card users will start to see some improvement on their score. But don’t get impatient if it takes time.

First published in the Toronto Star  on Oct. 25, 2012.

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