How to improve your access to credit? There is no perfect recipe, but here are some tips that may help you.
Carefully prepare your application
Before asking for a loan, request a copy of your credit file and make sure it does not contain any errors. If any are present, have them corrected immediately. Then, consult with a representative from your financial institution, as a well-prepared application, with a reasonable credit limit, will increase your chances of obtaining a loan. You will also avoid the negative mark in your file that they attach to a refusal!
Check your debt ratio
Before heading off to your financial institution, calculate your debt ratio (click here for a quick assessment). If it is too high, i.e. over 40%, the chances are great that your loan will be denied, which will in turn negatively impact your score.
Beware of late payments!
Avoid late-payments at all costs. Whether the amount is high or not, late is late… a score of R-3 or worse is frowned upon by your creditors, be it for a $200 account or a $2,000 one. All poor scores remain in your file for six years. A little discipline is therefore important!
Keep an eye on the authorized limit
Make sure to keep your credit card and credit line balances low (ideally, 35% or less of the authorized limit). This percentage will increase your score the most. Between 35% and 50%, it increases, but less. If your balance is over 50% of the authorized limit, your score will be negatively affected.
Keep your “old” accounts
Accounts (credit cards/credit lines/personal loans) that have been opened for a long time are much better for your score than new ones. Keep them active if possible, without multiplying them.
Credit cards first
If you wish to lower your debt, always start by reducing the balance due on your credit cards. This is for two reasons: credit cards generally cost more in interests than other loans; by lowering the amounts due on your credit cards, your score will increase more than if you reduce your car loan or mortgage.
Ideally, only one credit card
Yes, the fact of having several types of credit helps your score. But when it comes to major credit cards, try to use only one. In addition to limiting the chances of more debt, it will then be easier to control your spending and ensure that you pay your balance on time.
If you have filed for bankruptcy
Aside from a secured credit card, in the first two years following your bankruptcy, avoid any loan requests through financial institutions that were included in your bankruptcy or consumer proposal. Given the loss that they will have suffered, they will be less likely to grant you credit again.
Make all of your requests within two weeks
Avoid multiplying, over time, credit requests with creditors, as loan refusals are very harmful to your score. If you are shopping for a house or a car, make all of the loan requests within a span of two weeks: these requests will then be grouped and considered as one.
Stability is key!
Fact is, creditors are reassured when their clients show stability by avoiding frequent moves and multiple changes in employment.
Finally, remember that it is not because a financial institution offers you credit that you must accept it. When it comes to financial matters, be cautious, patient and… reasonable.
Reimbursing your debts
You have decided to undertake your debts and regain control of your finances. But are asking yourself where to start…