How to Fix your Credit

Dan Balch help clients attain credit in spite of their credit issues. Dan provides clients with mortgage options even after bankruptcy.

Having impaired credit may seem like it is the end of the world, but the good news is it can be fixed, the bad news is it usually takes a fair amount of time. Of all the reasons, why a mortgage is not approved, this is number one. One of the biggest issues with credit is we are never taught anything about credit or specifically our credit report. I am going to change that for you and explain the credit report and show you how to change your situation.

When we look to approve someone for a mortgage there are four criteria we look at:

  1. Creditworthiness
  2. Income
  3. Down payment
  4. Property

Number one on this list is creditworthiness and receives the most amount of weight when determining whether to approve or turndown a future homeowner. The credit bureau is the only way a prospective lender can tell if you are willing to pay back the mortgage, and/or pay it back on time. If you have impaired credit you must get serious about fixing your credit and increasing your score, it must become a priority in your life, or else it will hinder you from receiving credit in the future or at least cost you more in interest rates.

Your credit score (Beacon Score) is a number between 300 – 900 and is derived by a number of factors:

  • 35% of your score is based on how you make your payments, are you late, do you pay multiple payments, do you have collections or bad credit
  • 30% of your score is based on the amounts owed and the relationship between the balance and the limit. You should never go above 50% of your limit.
  • 15% of your score is how long you have been on the credit bureau or your credit history.
  • 10% of your score is based on type of credit.
  • 10% of your score is based on new credit.

How do I raise my score?

The simple answer is time! I know that is not the answer most people want to hear, they want something they can do or fix now but even with the 7 secrets I am going to give you, the bottom line is it still takes time.

Secret 1: Stop applying for credit! Every time someone pulls your credit report when you apply for credit, it will lower your score. The only exception is if you are shopping for a mortgage, if the inquiries are all pulled with 45 days of each other, then that will only count as one and your score will only go down a little. Instead of pulling multiple credit bureau’s go to a broker, do it once and they can work with that one bureau and help you with any error’s or problems the credit bureau may have.

Secret 2: Always, always and I repeat always, at least pay the minimum balance due and pay it on time!!! In a perfect world, it would be nice to have your cards paid off every month but it’s not and that’s why you are reading this.

Secret 3: If possible, make multiple payments on your cards. Let say your due date is the 15th, then make the minimum payment on the 10th and another payment on the 20th.

Secret 4: Keep your balances below 50% of your limits. The credit bureau can’t tell how much interest you are paying on your cards. Most people will keep a high balance on a card with a lower interest rate, but the problem is that will lower your score. If possible, instead of keep a high balance on the low interest rate card and a low balance on the high interest card, even them out so they are both below 50%. Don’t worry about the interest rate, we want you to pay them off anyway in the shortest amount of time so it will not matter.

Secret 5: When you pay off your credit cards (and I am confident you will) do not cancel the cards, just throw the card into the freezer and don’t use it. Having access to credit but not using it will increase your score. If there is an annual fee, I would cancel it at the renew time or have the company give you one that has no annual fee.

Secret 6: If you have any outstanding collections, try to settle them. Most often the collection agency has bought the debt for 10 cents on the dollar, so if they get 20-50% of the collection amount, they may just settle.

Secret 7: The credit reporting agencies are not perfect and because of this startling fact there may be errors on your credit bureau that are detrimental to your score. You need to check your credit at least once per year to make sure it is correct. You can do this free by contacting the two credit bureaus:

www.Equifax.ca

www.TransUnion.ca

Now that you know the secrets, start applying them and give it some time, it may take 4-6 months of perfect credit and repayment to get your score back where it needs to be.

For more information or just need to talk, contact me at dan@danbalch.ca