As you move through life and learn about the different credit products available, you will realize how good credit can be for your financial health. A good credit score is one of the best stepping stones you can create for yourself. It can help you secure a healthy financial future and get affordable rates on auto loans, mortgages, or any other type of loan. So, it is important to stay up to date with all of your credit related transactions and make your payments whenever needed. Once you've been able to maintain that strong credit history, the possibilities are almost endless.
However, sometimes life knocks us down and situations beyond our control arise. Physical, mental and financial emergencies can cause us worries for months or even years. At this time, some people find it difficult to control their spending. This results in bad credit after a long period of debt problems. Consumer proposals and bankruptcies, as harsh as they are, happen every day across the country. For all of these reasons, repairing and maintaining credit after it has been badly damaged can be one of the most frustrating and time-consuming financial challenges. So how do you deal with it? How do you start repairing your bad credit when it's time to take care of it? The Credit Repair Ease team has a few tips at your disposal that you can use in the event of bad credit.
What are the causes of bad credit?
A bad credit rating can be attributed to a number of different factors in the financial world. One of the main causes is the accumulation of consumer debt due to unpaid credit card bills and various types of personal loans, all of which are consumable and have no long-term value. Another significant credit loss factor that many Canadians face on a regular basis is defaulting on loans. Whatever the cause of your debt problems, most information goes straight to your credit report, where it can stay for years. With every bad transaction you make, your credit rating will go down as well.
Irresponsible use of credit cards
One of the main causes of debt in Canada is, of course, the use of credit cards. Credit cards are often the first credit product that people apply for and start to use on a regular basis. In fact, responsible use of a credit card (that is, paying bills on time and in full) is a great way to build and maintain a good credit history. However, using a credit card is easy and convenient, which is not always a good thing. In most outlets, you don't even need to enter your PIN (Personal Identification Number) code anymore, as most machines have the option of "tap". And, since technically you only have to pay a minimum monthly charge on your credit card bills in order to avoid a penalty, these are very tempting.
Default on loans
Being in default on your loans is just as worse as not paying your credit card bills. Worse in some ways, because "secured" loans involve collateral, and could be repossessed to compensate the lender for default on the part of the borrower. Missed auto and mortgage payments are a huge death sentence for many USA Citizens.
In order to file a consumer proposal, you will need to do business with a Licensed Insolvency Trustee. They will negotiate with your creditors on your behalf, informing them that you are unable to repay them in one payment. Once the proposal is accepted, you will repay your debts in regular payments, through your trustee. While a consumer proposal is above bankruptcy, it will hurt your credit rating for at least 3 years. In fact, if your debt level is bad enough that it takes 4 years to resolve, it will appear on your credit report for 7 years.
Probably the worst thing that can happen to your credit rating is to file for bankruptcy. Despite the fact that this may be the only choice for many consumers with serious debt problems, know that it will have a huge impact on your credit rating for a very long time. In fact, a first personal bankruptcy will stay on your credit report for 6 to 7 years, depending on the bankruptcy agency you are dealing with and the province or territory you live in. It takes 7 years in Quebec, New Brunswick, Newfoundland and Labrador, Prince Edward Island, and Ontario. What if this is your second bankruptcy? 14 years damaging your credit. For this reason alone, bankruptcy should always be considered a last resort in the most serious debt situations. Thus, before concluding, it is extremely important, as with the consumer proposal, to obtain a free consultation with a Licensed Insolvency Trustee to determine that bankruptcy is the only possible option. Remember that after the first free consultation with the trustee, you will need to start paying for the trustee's services and any related legal fees.
How to improve your bad credit?
All of this does not mean that you will have bad credit all your life. If this one is worse than average, don't panic. It is possible to improve it. The key is to be patient and proactive. If your credit is badly damaged (i.e. less than 500), it will take time and effort to fix it. Even if your credit is better than average right now, it never hurts to find ways to improve it. Here are some things you can do to make it happen.
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