If your credit rating has dropped, you can still get credit.  Here are the best ways to rebuild your credit score.

Action #1: Get collections and bad debts settled

First, you must make sure there are no unpaid debts or items in collections that have not been settled.

If you have unpaid bad debts these need to be dealt with prior to starting any credit rebuilding. We have lots of information on our site about dealing with large amounts of debt. You can read about our credit rebuilding program here.

If you live in Canada, you can also phone your local 4 Pillars office (we have 50+ offices across Canada) as I can’t offer specific advice without seeing your debts and situation. Find your local office here.

Action #2: Get your rent positively reporting

If you are a renter, you can now use LCB tools to have your rent payments reported to Equifax to help improve your credit report. Tenants rarely receive an extra benefit for paying rent on-time, taking care of the place and just being a good tenant.  By having your on-time rent payments reported to credit bureaus, you can improve your credit report, help minimize the impacts of previous financial challenges and improve a poor credit history.  In addition, tenants benefit from a good tenant history and preferred tenant status.

Action #3: Open a secured credit card account

If you have no credit history or need to start developing a positive payment history, open a secured credit card account.

This requires you to pay a deposit (such as $500) and this is the limit of your credit. The secured credit card provider reports your payment habits to credit bureaus, which helps you start gaining points.

Tip: when opening a secure credit card, make sure you ask whether they report repayment behavior to TransUnion, Experian, or Equifax. Not all secured credit cards will do this, which defeats the purpose. Pre-paid cards don’t usually report at all.

Remember: the goal of this card is to build your credit rating. So don’t fall behind with payments. Instead, use the card for regular planned purchases such as buying gas twice a month. Then pay the bill immediately after it arrives.

Action #4: Get a cell phone with a contract

I know—it’s cheaper to buy your own phone or go with the low-cost mobile providers like Koodo or Wind. But applying for a cell phone on a contract is a great way to start rebuilding your credit history.

You can often offer phone companies a deposit (such as $300 on your account) if they deny you based on your credit history.

Major phone companies report your payment habits to the credit bureaus.

Tip: pay your bill every month. Set-up automatic payments with your bank if this helps. Paying your bills on time every month will dramatically help to improve your credit rating. This means on the day they are due. All the reporting is automatic, so even three days late makes a difference. Pay your bills a few days earlier if possible.

Action #5: Don’t switch plans, open new cards, or apply for ‘pre-approved’ promotions

Let’s say you are doing well with your secured credit card. You also signed up for a cell phone that is reporting positively to Telus.

Then you check the mail—Koodo has a new deal, a new secured credit card offers you a better rate, and a ‘pre-approved’ credit card offer comes through.

If you have good credit, it pays to switch vendors or accept introductory offers. But creditors like to see an established credit history and building a history of positive payments is critical.

If you frequently close down credit cards (to get new reward points) then you will never develop a long-term credit history and this will impact how quickly your score improves. Keep one credit card open for a long time and establish a history of on-time payments.

Also, “pre-approved’ doesn’t mean you will qualify but it does guarantee if you complete the application form they will check your credit and it will show as a hard inquiry. You don’t want hard inquiries on your credit file right now.

The good thing is, if you are getting “pre-approved” mail then your score is moving in the right direction.

Tip: don’t be tempted by new offers. Stick with your current providers and build a long history of regular payments. Stay strong!

Action #6: Every week, do the work

Getting hit with NSF fees or overdrawing your account is a bad sign to creditors. Be alert. Check your bank balance every week and make sure you are living within your means.

Tip: Schedule 20 minutes every Sunday to review your bank statement and stay alert. Keeping receipts and checking them off against your online banking will also increase awareness on how your money is being spent and highlight any spending habits you might want to change. Put the time in and work on your finances every week.

Action #7: Avoid shutting down accounts

Building on the previous point, keep accounts open rather than shutting them down.

For example, let’s say you spend too much on your secured credit card and it goes close to the limit and you feel like you are slipping back into old habits.

You declare a cash diet, cut up all your credit cards, and vow never to use them again.

This might prevent you from going into debt—but doesn’t help rebuild your credit rating.

A better solution is to leave your accounts open—for example, lock your credit card in a safe and then always ensure the minimum payment is made and look at your budget and see what changes can be made to quickly pay down the balance.

Tip: don’t cancel accounts, instead keep them open.

Action #8: Maintain a variety of accounts

Having a mix of credit types such as a Future Shop credit card, a MasterCard, a car loan, and a line of credit will gain you more points on your file.

Of course—this must be done carefully and only apply when you know you will qualify and you know that any debt you take on can easily be repaid. Be careful!

Don’t carry too many accounts. Having too many credit accounts can be a warning sign for creditors.

Tip: Here is a good rule: never more than three credit cards, never more than two retail balances (such as a Future Shop card), and don’t take out multiple loans. Also, having multiple balances on each card will cause you to lose points.

Action #9: Check for errors on your credit report

At least once a year, you should pull your credit file and look for any errors.

It’s not uncommon for errors to appear on your credit file (such as a creditor reporting a missed payment when you actually paid it). If you find an error, you can ask the credit bureaus to correct it.

Tip: check your credit report for possible errors and ask the credit bureaus to fix them.

Action #10: The best credit card balance ratio

If you are able to get a credit card, then you’ve probably heard about credit utilization.

This means the percentage of credit you use every month. For example, if you have a credit limit of $10,000 and carry a balance of 90 percent of that every month, even if you make the payment on time every month, this is a bad sign to creditors.

To rebuild your credit score, keep your usage of credit between 10 and 20 percent. A lot of blogs will recommend 30 percent but to keep it safe, keep it below 20 percent.

Tip: when you do get a credit card, only use 10 to 20 percent of your monthly limit. For example, if you have a $10,000 credit limit don’t carry a balance of more than $2,000.

Action #11: Catch late payments immediately

Life happens. People miss a payment every now and then.  But if you have a late payment, it will be reported to your credit report. Catch up as soon as you can and always make that payment the priority.

If you are trying to rebuild your credit, a missed payment is a small step backward each month.

Tip:  Computers track your payments so sometimes errors can happen (such as a payment on Friday not being entered in the system till Tuesday due to a holiday). You need a system for double-checking that all payments have been made. Use a simple spreadsheet and double-check at the end of the month.

Action #12: Enroll in a credit building program

Financial professionals can help you take the right steps to building your credit as fast as possible.

At 4 Pillars, we do things such as:

•  Show families how to settle collection items
•  Help them correct reporting errors
•  Show them different financial products that can help rebuild their credit
•  Explain how credit scores are calculated and analyze possible actions to take

Credit rebuilding isn’t one size fits all and every plan is different depending on your current situation and future credit needs.

If you’d like us to review your file and suggest some actions to take, email your local 4 Pillars office.