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Clever Ways to Repair Your Credit After Difficult Times

By Pierre Roy, Bankruptcy Trustee

The harm was done. Him who will remain anonymous had filed for bankruptcy with us about 3 months ago. He was calling us for help and guidance on how to rebuild his credit score after an R9 note had been dropped on his credit report.

There is no doubt about it – bankruptcy gives a fresh start. It is a chance to start over without the burden of past debt and build a better future for yourself. A future where you won’t make the same mistakes and fall in the same patterns. However, your credit score will follow you for a while in this new life. It is you responsibility to prove to your creditors that you have learned and you will better manage your credit.

Coming back to our client… He was not alone. Thousands of people – some who have filed for bankruptcy and some who haven’t – face a bad credit score every day. These people are usually in the process of getting a loan for a car or a mortgage for a house but are repeatedly denied by banks and private lenders.

If you have been through a job loss, a nasty divorce, an illness or any other cause of financial distress and your credit has suffered, don’t over worry. Bad credit will follow you for some time but it is possible to repair it.

And even if you are not facing financial difficulties, you should follow these clever ways of improving your credit score. It’s not to be taken lightly since your credit score is taken into account when you are trying to secure loans, credit cards, apartments and even jobs.

1. Look for errors

You would be surprised how often we see mistakes on credit reports. The credit bureaus are managing millions of files and they can’t afford to manually verify all of them. Unfortunately, that responsibility falls on you.

When it comes to fixing credit report errors, the most effective way to get through is by sending a formal letter via snail mail. You can use this sample letter provided by the FTC if you don’t know where to start. Don’t forget to include proofs like payment receipts or confirmation letters from your creditors.

2. Under-use your credit cards

Part of your credit score is calculated according to your credit utilization ratio. This means that you will improve your credit score by simply lowering your balance. Your target should be to keep your balance under 50% of your credit limit. An easy way to do this is to pay your credit cards twice a month.

3. Always pay on time

Whether you are 1 hour or 10 days late on paying a bill, it will show up as a late payment on your credit score. And when 35% of your credit score is based on how on time your payments are, it makes you not want to miss any.

4. Negotiate with your creditors

If you have debt that is past due, it is very important that you tackle it promptly. You do not want to have it on your credit report and since it will stay there for a while, the faster you take care of it, the faster it will be removed.

One way to do this is to contact your creditors and negotiate a payment plan. Many creditors will be happy to cash a smaller amount today than maybe the full amount in months or years. For example, if you owe $500 to your past cellphone provider, you could offer them a one-time payment of $250 today so they erase your debt. That kind of deal is definitely a win-win scenario since your creditor would have probably sold your account to a collection agency for less than what you offered them.

5. Reduce your level of activity

Physical activity is healthy but credit activity can be worrisome. If you go out and open many bank accounts, apply for credit cards, seek apartments and jobs, this will result in many credit report requests. An abnormal level of activity in your file can frightened potential lenders, as they will assume you are in financial distress.

As much as possible, don’t make unnecessary changes to your accounts. Through your credit report, try to present yourself as a loyal and stable client who always pays on time.

Pierre Roy is a Canadian Bankruptcy Trustee and founder of Pierre Roy & Associates.

photo by StockMonkeys.com