How can I Create a Good Credit History on My Credit Report?
How can I build a good borrowing history?
Every new entry on your credit report must show that you are in full control of your financial life. Follow a simple strategy, starting with small borrowings and building as you can.
- The top rule is: Always pay your bills on time. Don’t borrow until you know you can be sure of repaying as agreed.
- Start saving money. If you were bankrupt, you were probably making a contribution to your bankruptcy estate, by paying the trustee each month. Since you are now used to living without that money, start putting that money in a separate savings account each month. You need enough savings so that emergencies won’t interrupt your ability to pay your bills. It will be easier to avoid spending your savings, if you put them into a separate bank account.
- Consider whether you can increase your income, perhaps with an after-hours part-time job. More income would give you more options for saving and borrowing, and lenders will regard it favourably.
- When you have more savings than you need for emergencies, borrow fully-secured money – that is, a loan that you can guarantee in some way. Your guarantee could be by an asset such as a car, or a co-signor. Repaying the loan adds to your good credit history. If you fail to repay, the lender can simply sell your asset or get payment from your co-signor.
- As you continue to save, use some of your savings to get a secured credit card. Use it, and pay it off in full every month.For example, if you give the credit card company $1,000 as a security deposit, they will probably give you a Visa card with a $1,000 limit. Your credit card works just like a regular credit card, and even better, it shows up on your credit report, which is an important step to repairing your credit.
- Next time you have some available savings, invest it in an RRSP. With a secured credit card and money already invested in an RRSP, it’s possible that your bank will lend you money to invest in your RRSP. You can use the extra tax refund to repay most of the RRSP loan!For example, if you invest $500 savings in an RRSP, the bank may give you an RRSP loan of $500. With $1,000 in the RRSP, your tax refund will probably increase by $300 to $400, which makes repaying the loan easy. And you will have $1,000 to help your retirement.Banks appreciate people with RRSPs, because they seem to be looking to their future.
- Borrow even if you have no need, and pay it off promptly. Just get a small line of credit to use for paying off bills, then pay off the line immediately. Do this repeatedly, to get more good items on your credit history.
Now your credit report shows a credit card, an RRSP loan that you have paid off, and you have $1,000 in an RRSP. You have a history of on-time debt payments, and no late payments. It is possible to achieve this even before a bankruptcy falls off your record.
You can’t repair your credit right away, but if you continue to save money, and follow the steps listed above, you can gradually rebuild your credit, after a bad credit rating, even after going through bankruptcy in Canada.