How to Repair Your Credit in 10 Simple Steps

Repairing credit begins with understanding where you currently stand.

• Access Your Credit Report: Legally, Canadians are entitled to free credit reports from agencies like Equifax and TransUnion. Obtain copies and review them thoroughly. Look for late payments, high balances, or errors that could be impacting your score.
• Know Your Credit Score: Your credit score provides a snapshot of your financial health. Scores range from poor (300-559) to excellent (760 and above). By knowing your score, you’ll have a benchmark for improvement.
• Identify Problem Areas: Take note of the factors negatively affecting your score, such as missed payments or maxed-out credit cards.

Errors on your credit report can unfairly lower your score, so disputing inaccuracies is an essential step.

• What to Look For: Common errors include incorrect account information, duplicate entries, and payments marked as late when they were on time. Unauthorized accounts may also signal identity theft.
• How to File Disputes: Contact credit bureaus directly to file disputes. Provide evidence, such as payment receipts or correspondence with creditors. Use online portals or mail to submit your claims.
• Follow Up Regularly: Resolving disputes may take time, but staying proactive ensures errors are corrected efficiently.

Disputing errors can lead to a quick boost in your credit score.

High debt levels are one of the most significant barriers to good credit. Reducing your debt is key to improving your score.

• Debt Reduction Strategies: Prioritize debts by interest rate. Paying off high-interest debts first can save you money in the long run. Alternatively, the "snowball method" involves clearing smaller debts to build momentum.
• Communicate with Creditors: If you’re struggling to pay, reach out to creditors. Many offer payment plans or settlements to help you manage debt.
• Avoid Defaulting: Missing payments altogether can severely impact your credit. Even partial payments are better than none.

By reducing your debt, you lower your credit utilization and demonstrate responsibility to lenders.

Without a budget, it’s easy to overspend and neglect debt repayment.

• Track Spending Habits: Record every expense, from daily coffee runs to monthly bills. Identify areas where you can cut back.
• Set Financial Goals: Allocate specific amounts for necessities, debt repayment, and savings. Stick to these limits.
• Use Budgeting Tools: Budgeting apps like Mint or YNAB (You Need A Budget) can help you stay organized and accountable.

A well-planned budget helps prevent overspending and ensures your credit repair efforts stay on track.

Payment history is one of the most critical factors in determining your credit score. Improving consistency in payments can make a big impact.

• Automate Payments: Set up automatic payments for bills to ensure they’re never missed.
• Pay On Time: Timely payments demonstrate reliability to creditors and improve your credit over time.
• Resolve Past Due Payments: If you have overdue balances, prioritize catching up to prevent further damage to your score.

Consistency is key—creditors value borrowers who can make payments on time, month after month.

Your credit utilization ratio—the percentage of credit you’re using relative to your limit—plays a significant role in your score.

• Keep Usage Below 30%: Ideally, use less than 30% of your available credit. For example, if your limit is $10,000, aim to keep balances under $3,000.
• Pay Down Balances: Focus on lowering balances on revolving credit accounts, like credit cards.
• Request Higher Limits: If you qualify, requesting a higher credit limit can reduce your utilization ratio. Just be sure not to increase spending.

Low credit utilization signals responsible credit use and boosts your score.

New credit applications can temporarily lower your score, so limiting them is important.

• Limit Hard Inquiries: Hard inquiries occur when lenders check your credit for new applications. Too many within a short period can hurt your score.
• Avoid New Accounts: Focus on stabilizing your current accounts rather than opening new ones.
• Be Cautious with Offers: Avoid offers that encourage overspending or unnecessary debt.

Maintaining stability with existing credit accounts helps your score recover over time.

Demonstrating responsible credit use is critical for building good habits and boosting your score.

• Small Purchases: Use credit for small, manageable expenses and pay them off immediately.
• Avoid Overcharging: Resist the temptation to charge luxuries or impulse buys to your credit cards.
• Manage Balances Wisely: Keeping balances low signals financial discipline.

Responsible credit use is about proving to lenders that you’re trustworthy.

If your score is low, credit-building tools can provide opportunities to establish good habits.

• Secured Credit Cards: These require a deposit but operate like traditional credit cards. They’re a great way to rebuild your score.
• Credit-Builder Loans: These small loans are designed to help borrowers build positive payment history.
• Authorized User Status: Being added as an authorized user on someone else’s credit card allows you to benefit from their good credit practices.

These tools are valuable for rebuilding credit in a structured, reliable way.

Repairing your credit is a long-term process, but staying motivated is crucial.

• Track Your Improvements: Regularly review your updated credit reports and scores to measure progress.
• Celebrate Milestones: Reward yourself when you reach small goals to stay motivated.
• Continue Learning: Stay informed about financial literacy to maintain positive habits for years to come.

Persistence and dedication will lead to lasting results.