How to Rebuild Bad Credit

April 11, 2019

If you have a low credit score, it’s time to begin rebuilding your credit. But where do you begin?

The number one step to repairing bad credit is…

Dealing with your debts.

That’s right. If you can’t pay your debts, it’s going to be very difficult, if not impossible, to rebuild credit.

There are several factors that go into improving your credit score. These include:

Paying your bills on time.
Paying your bills in full – only covering the minimum balance isn’t enough.
Whether you make a number of applications for additional more credit or making too many credit inquiries in a short amount of time.
The total amount of debt and credit products you currently hold.

Dealing with debt is the key to meeting all of these factors and more.

If you are carrying a large amount of consumer debt, you’ll have less income to spend because a good portion of your income will be going towards debt payments. This means that it will be harder to pay bills in full and leaves very little or nothing for you.

And depending on the size of the bills, it may not even be realistic at this point in time to pay them in full.

If you have several credit products (like credit cards) maxed out, it may be tempting to apply for more to pay the others — but this will only make your score worse.

Lowering the total amount of debt you owe is the first step to rebuilding good credit.

How can you get out of debt? There are many options available. The right one for you will depend on your unique situation. Some of these solutions include:

Strict budgeting. Depending on the amount of debt you owe, you may be able to pay it off by carefully watching what you buy and when you buy it.
Consolidating debt. A secured consolidation loan or accessing home equity at lower or fixed rates to pay off your other debts can lower the costs of your outstanding debts. You’ll then only have one payment — the consolidation loan — to pay back at a fixed or lower cost each month.
Filing for a Consumer Proposal. If you can’t continue to pay your debts, and you can’t qualify for a consolidation loan, an increase to your existing mortgage or a home equity loan, and have no other sources of additional credit, you should consider filing a Consumer Proposal with a Licensed Insolvency Trustee, where you can make a settlement offer to your creditors. Once the Consumer Proposal is accepted by your creditors all collection actions and interest charges will stop. A Consumer Proposal can get rid of your debts for what you can afford to pay over as long as 5 years. To qualify for a Consumer Proposal, you need to have less than $250,000 in debt (not including your mortgage). If you have more than $250,000 in debt, there are other types of creditor proposals you could consider with the help of a Licensed Insolvency Trustee.
Filing for Bankruptcy. If you have lost your job or you don’t have sufficient income to repay some portion of your debt in a Consumer Proposal, you may consider filing for Bankruptcy with a Licensed Insolvency Trustee to eliminate your debts.

Sometimes people are wary of filing for a Consumer Proposal or Bankruptcy when trying to rebuild credit. Both options will leave you with a low credit score — an R7 for a Consumer Proposal and an R9 for a Bankruptcy — that can remain between five-to-seven years on your credit report.

However, it is likely that your credit score has already been seriously impacted by not paying your debts on time. With a fresh start, you can begin to rebuild your credit. You can start rebuilding your credit immediately after filing for a Consumer Proposal or Bankruptcy.

At Fuller Financial Solutions, we can help you assess your credit rebuilding options. We’ll walk you through different available solutions to deal with your debt and help find the best path for you.