schizo_man said:
Thought I 'd throw a question your way, there seems to be some people with great financial know how on here.
I'm looking to rebuild my credit rating. A few years ago (about 5 or so) I screwed up by not paying off a Best Buy card and had my account go to collections, it's been paid in full since. Thing is, now 5 years later I'm looking to get some credit and I can't. I've mostly been a "if you don't have the cash, don't buy it" kind of guy. I've bought pretty much everything with cash, cars included. My monthly income isn't a concern.
What is the best way to change a credit rating? who do I go to? Needless to say I'm not the best financial planner.
it sucks to be 30 and not have credit.
The first thing you need to do is order copies of your credit bureau reports so that you can see exactly what is on there. A single account going to collections (and subsequently being paid in full) should not be enough to completely decimate your credit rating, unless you've only very recently paid it off, or have no other credit history other than said account. The likely scenario is that you either have other unpaid accounts that you've totally forgotten you had (BTW, unpaid video and library fines can go to collections too!), or that there is some fraudulent activity going on under your name (i.e. someone has applied for credit in your name). Hopefully it is the former, as that is much easier to rectify than the latter.
Credit reports can be ordered from
Equifax and
TransUnion, either online (for a fee) or by mail (free). Your best bet is to purchase the option that gives you your actual credit score (a 3-digit number), even though it is more expensive, because it will allow you to know exactly how lenders view you. This option also gives you a breakdown of factors that are adversely affecting your score, and how to mitigate them.
Once you have the credit report, check it over thoroughly and make sure all the information contained in it is accurate. The credit bureau will provide you with details on how you can correct any inaccuracies - do this ASAP. Next, clean up any other delinquent accounts that may exist. Make sure to get a letter from the lender stating that the account is paid in full, and forward a copy of the letter to the credit bureau. If there is any fraudulent activity on your account (which I hope to hell there isn't), you are unfortunately pretty much screwed for a couple of years while you get that sorted out.
To build or re-build your credit rating, you have to start small. If you have a good job and a steady income, you should have no trouble getting a low-limit card from any of the major banks, especially if you already have chequing, savings or investment accounts with them. They will issue cards with a $500-$1000 limit to anything with a pulse, including broke, starving, unemployed university students. Apply for one or two cards to start, use them regularly, and pay them off in full every month. One thing to be aware of, however, is that you should not maintain a balance anywhere close to your limit, as a high ratio of loan to limit will negatively affect your credit score. Use the cards, but don't abuse them. You should also try to get a small fixed loan (not revolving like a credit card or line of credit), and pay that off in about 6 months. Lenders like to see responsible use of a variety of types of credit. The key is to actually borrow the money, and then pay it off.
It is also important not to go overboard with credit requests. Every time someone other than yourself pulls your credit bureau report, your score takes a small hit. So apply for 2-3 sources of credit to get yourself started, but then don't apply for anything else whatsoever for at least a year (also, ensure that companies don't pull reports without your consent - be suspicious anytime you are asked for your Social Insurance Number).
The big factor that is not on your side, unfortunately, is time. So, once you successfully apply for some credit, you will need to be patient as you build a record of consistent, timely payments.
One last thing, make sure to follow up by monitoring your credit bureau reports at least twice per year from now on.
If you have any other questions, feel free to PM me.
