Tips on Establishing Good Credit

You can save a lot of time and frustration by learning how to establish or re-establish and maintain a great credit rating. Here are some tips to help you do so:

Talk to the lender at your financial institution to see specifically what steps you can take, together, to rehabilitate your credit-worthiness.

• Pay off any credit cards you still have and re-establish a 'current' footing with them.
• Apply with your bank for a credit card with a very low limit ($300 to $1000); if it will, use the card wisely and make sure it is always paid on time. This will indicate that a trend has passed and a good credit history is being established.
• You may be able to obtain a credit card from the bank or even a small bank loan by having a friend or relative co-sign for the application. Repay the loan quickly to begin showing positive reports to your file.
• Do not carry your credit card balances near, at or over the credit limit - such activity will lower your credit score. Pay at least your minimum payments on time and in full as required by your monthly statement. Credit reports will show how many times you have been 30, 60, or 90 days late.
• Avoid small private loans or, loans for used cars from your local used car dealer are not going to help you much, because these types of loans are not reported to the credit bureaus. All credit cards, whether they are regular bank cards, department store cards, secured or unsecured are reported to your credit bureau and all activities are updated monthly.
• Avoid applying for credit whenever and however you are offered the opportunity. Each application for credit triggers a credit inquiry which negatively impacts your credit score. A conservative approach is looked upon far more favourably. Use a mortgage broker when applying for a loan or mortgage to eliminate the number of inquiries on your credit file.
• Also consider only applying for a mainstream credit card like Visa® or MasterCard® as most retailers will accept cards. Department store and retailer credit cards tend to be redundant and also charge a far higher rate of interest.
• Learn about the most common 'credit criteria' that lenders use to grant credit, and attempt to position yourself as well-established as possible. For example, stability factors such as how often you move or change jobs are quite important. If possible, maintain your employment and residence status for at least two years.
• If you are married or in a partnership relationship and have a spouse or partner with poor credit, you can insist that your credit bureau files be kept separate so that your good credit rating does not become tainted. In this case, assuming you did not sign for any of the delinquent debt, it is important to keep a close tab on your credit bureau file to ensure that none of the credit problems get moved into your file by accident. You may also wish to confine your future borrowings and credit cards to your name alone, rather than setting up any joint debts.
• If you can afford to do it, consider borrowing a small loan at the bank (say, $1,000) and repaying it over a year. You can use the borrowed money for an investment and pledge the investment (i.e. term deposit, Canada Savings Bond, mutual fund, etc.) as collateral for the loan. Most bankers are quite approachable with this strategy and some or all of the interest cost on the loan will be tax- deductible for you, depending on the nature of the investment purchased.
• A similar alternative is a loan to invest within an RRSP. Again, bankers will see you planning for the future as a change in previous spending habits and ready for re-established credit.
• Get a secured credit card by providing cash equal to the amount of the credit limit they will grant you (if you think a bank credit card is unnecessary, try arranging a rental car or hotel accommodations without one). Home Trust offers an excellent secured Visa® product to assist those attempting to establish or re-establish a good credit rating. See our web page Start Rebuilding Now for more information on this product.