5 Steps to Rebuild Your Credit

Rebuild Your Credit

5 Steps to Rebuild Your Credit

1) Check your credit:

Most people simply assume they have bad credit. Or even worse, they have no idea where they stand at all in terms of creditworthiness. “A lot of people come in here and are surprised by what’s on their credit, but people need to take responsibility for knowing what might be out there affecting their credit score,” Bannink says.

To find out where you stand, get a free credit report from Equifax or TransUnion, Canada’s two credit bureaus. Individuals can also request a credit score, which may involve a fee. Often referred to as a Beacon score, it can range from 300 (poor credit) to more than 760 (excellent credit). Bannink says lenders use the Beacon to assess risk for borrowers. “For prime lending rates, you need to be around 700-plus,” he says. “Anything less means you’re likely to fall into the subprime category and consequently you will pay a higher interest rate.”

2) Pay on time, every time:

Even if it’s just the minimum payment on your credit card, a payment is a payment. It shows creditors you’re at least capable of paying the bills. When you miss one, it negatively affects your credit score. Yet many people miss payments all the same. “They do so because they think it’s a small amount of money that isn’t going to do much to reduce the debt — so why bother, right?” Bannink says. But it is worth the bother because every missed payment makes it harder to negotiate better terms, he adds. “To avoid this from happening, have the payment automatically come out of your bank account.”

3) Add more balance to your balance:

Don’t despair just because you can’t pay off your credit card balance in full. The fact is carrying a balance isn’t a deal-breaker when applying for a loan, Bannink says. Still, lenders do like to see a little breathing room when it comes to credit limits. A good rule of thumb is getting the balance down to at least 60 per cent of the limit. “For example, if you have a credit card with a $1,000-limit, try to get it to $600 or less for the simple fact the banks are always looking at your debt- service ratios,” Bannink says. “Once you have your balance under 60 per cent, your credit score will actually go up.”

4) Shop around — just not too much:

It’s a never a bad thing to seek out the best deal available, but when shopping for a loan, less is often more. “Don’t inquire for credit until you have to because what people don’t know is every time a lender pulls your credit, it can lower your Beacon score by as much as five points,” Bannink says. The more you seek credit, the more red flags it raises with other lenders. “They see it as an indication of potential trouble,” he says. “If you go to 10 places in three days, for example, it shows that maybe you could be trying to take out multiple loans.”

5) Don’t count yourself out:

When you’re drowning in debt, it’s often tempting to give up. And many people do; they throw up their hands in frustration and stop paying the bills. But it’s important to keep fighting. And the fact is most people — even with terrible credit scores — can qualify for a loan at a lower interest rate than they’re currently paying, Bannink says. “It’s very rare that someone can’t qualify,” he says. “You just might not qualify for the best rates if your score isn’t good.” Instead, it’s likely you will qualify for subprime rates. But even if you are a subprime borrower, many lenders have devised innovative methods to provide loans with lower interest rates than those traditionally associated in the past with the subprime loans. Bannink says don’t be surprised, for example, if a lender can now help consolidate multiple debts at a lower interest rate, in one monthly payment that is less than all the minimum payments you’re currently paying combined. “Knowledge is power when it comes to borrowing,” Bannink says. “That’s why it’s so important to do your homework and know where you stand before you sit across the desk from a lender.”

Top 10 Ways to Shop for Your Next Auto Loan

1.) Who, What, Where, Why and How You Get an Auto Loan

Anyone shopping for a car should also shop around for a lender. It’s a misconception that you have to settle for the first financing offer you receive, and, in fact, you shouldn’t consult with only one lender any time you need to take out financing for a purchase. You can get an auto loan from several sources including:

  • Banks
  • Credit Unions
  • Car Dealerships
  • Family & Friends
  • Use Your House Equity

 

2.) Shop around – Just Not Too Much

Your definition of bad credit might not be the same as your our definition, and different banks will offer different interest rates. Do your research by finding out the available rates various lenders charge so you don’t get taken advantage of when you show up at the dealership.

We reccoment looking up a bank’s auto lending rate sheet to learn what the current rates are for new and used vehicles based on your current credit score and bring this information with you when you go shopping for a vehicle in Edmonton.

3.) Use a 2 Week Time-frame When Applying

Applying for an auto loan means lenders will check your credit score, and each hit on your credit bureau negatively impacts your credit score. The good news is that scoring models usually count every credit inquiry performed by an auto loan lender within a 2-week time frame as just one inquiry.

 

4.) Keep Your Term Short as You Can Afford

You might have lower monthly payments with a 5 year versus a 3-year loan but pay attention to the interest rate. Generally speaking, interest rates are lower for shorter term loans, meaning you will end up paying less for your car overall which means your car will still be worth something in case you want to trade it in since you have good credit now.

 

5.) Shop for a Newer Model vs. Older Model

While it is obvious that a used car will cost much less in most cases but the truth is older vehicles tend to charge higher interest rates than newer ones. We recommend anyone looking to finance a vehicle look at a new car first, and then newer used cars since these are the cars that tend to offer the best financing. However, it’s possible to find a better deal on an older used vehicle, so check out all of your options before deciding.

6.) Do You Really Need a Vehicle Right Now?

Question whether you really need a vehicle. Loan experts agree that people with bad credit should hold off buying a new or used vehicle until they have improved their credit score. If you must buy a vehicle, make as large a down payment as possible. Seek someone to co-sign a loan for you if you need to get your credit off the ground or back on track.

 

7.) Shop the Total Loan Amount, not the MonthlyPayment.

The only time you should consider the monthly payment is when you calculate how much you want to spend for your car. After that, don’t discuss monthly payments. Some lenders may focus on the payments to induce you to borrow more money by extending the number of months you pay. That way they make more in interest, and you have to drive your aging car longer.

 

8.) What’s Better for You – The Perks.

Which would you prefer – super-low dealer financing or cash rebates? A recent survey from bankrate.com shows that 9 out of every 10 consumers took the cash back.

 

9.) Don’t Sign Without Reading and Understanding the Fine Print

We know you just want to sprint out of the dealership and get driving, but if you remember only one thing from this article, let it be to read everything carefully before you sign the deal and walk away.

Neglecting this could end up costing you $1000’s of dollars and/or making your credit score even worse depending on what is included in your contract.

 

10.) Last But Not Least – Don’t Believe the Hype

There is an overwhelming stigma out there when it comes to subprime, prime auto loans. Everyone has trips to Mexico, hot tubs, free iPad, and the cheese goes on. My biggest pet peeve is when I see these so-called credit brokers who are only interested in harvesting your personal information and selling you to the highest dealership. We get you approved and you can literally walk out on the lot and choose from over 3000 Amvic Licensed vehicles right there in the flesh. Sure they can get you approved but you may not like the vehicle they approve you for.