In order to improve a credit rating, it is important to get a credit card and make regular monthly payments. The main problem is it is almost impossible for people with bad credit to get a credit card in Canada. However, with certain conditions including fees and limitations, there are several credit card companies that are willing to give a credit card so that a bad credit rating can be improved.
The first step a person with bad credit should take is to check his or her credit score. It is not unusual for credit reports to have an error that is the reason for the low credit rating. If this mistake is found and corrected, the credit rating may go up. It needs to be reported within 30 to 45 days. If the credit agency agrees or if it fails to respond, the inaccurate information will be removed.
The two agencies in Canada that handle credit reporting are Equifax and TransUnion. Either agency will send a person a copy of their credit report if it is requested. Once this is done, the report can be checked and if there are any mistakes, they can be corrected.
Requesting to check a credit report does not negatively affect the score. If a creditor checks a credit rating it does lower the score. It is better for the person to check their own score. To get the actual credit score and not just an estimate, a fee will be required. Getting estimate scores for free may also help, because they will provide free advice on how to improve the score.
A free copy of a credit report can be requested once in 12 months, or if the person has been declined credit.
Before applying for a credit card, the person should have a steady income. The lender or financial institution that will issue the card will request information about employment and salary.
It is also easier to get a credit card from a financial institution if the applicant has a bank account with that institution.
The second step is to apply for a secured credit card. This means collateral is put up to back the card, so the interest rate is usually not as high as with an unsecured card. The deposit will be refunded in full when the account is closed if it is in good standing. The financial institution issuing the secured card will keep the deposit in the event the card holder does not make their payment. The financial institution will then use the money to pay off the debt and stop the card.
It is extremely unlikely that a person with bad credit will get approval for an unsecured credit card, but most people can get a secured card. An unsecured card is usually given to people with a credit score above 650.
For a secured card, a deposit of a few hundred dollars will need to be given. This will be the amount for the line of credit that is given. There are also annual fees from five to $120 on secured cards. If it is not possible to make a deposit, a house can be used as security on the line of credit. This is not a wise thing to do, because if the borrower defaults on their payment, they could lose their home.
When the person has received a secured card, some banks and lending institutions will allow the credit limit to be increased by the borrower adding funds to the deposit. The lender can be asked in advanced if they allow this.
Some lenders will also convert a secured card to an unsecured card after determining the regularity of the monthly payments. If they will do this, the deposit will also be refunded.
A prepaid credit card is another possibility. This will allow the holder to make purchases online, rent a car or use where checks aren’t accepted. Prepaid cards can also help build the credit rating. Two prepaid cards in Canada are the CAA TravelMoney card and the MyPlash Prepaid MasterCard. The CAA TravelMoney card has a very low setup fee and no monthly maintenance fee. The minimum reload amount is higher. The MyPlash card’s minimum reload amount is lower, but the setup fee is higher and it has a $4.94 monthly maintenance fee.
Student credit cards are available to students and will help them get a good credit rating. Students usually have no credit and cannot get regular credit cards. Because of this, credit card companies setup cards especially for students. These cards have low limits so the card holder can keep a check on their financial situation. Student cards are a good way for first time card holders to get used to using a credit card. TD Canada Trust offers several Visa cards for students.
It is possible to apply for a credit card online even for people with bad credit. The person should research many cards online and compare the benefits, limitations and fees. One thing to check is the interest fee. It may be low in the beginning and then shoot way up after six months. There are benefits such as travel miles or extended warranties on purchases that may not be useful to some. Also, the borrower should make sure the card reports to the credit bureaus.
Once the credit card is selected, the applicant can apply online avoiding lots of paperwork. Online applications are received instantly and approved much faster than traditional applications. However, some financial institutions require a personal visit.
One important reason to get a credit card, especially for people with bad credit is because that may be the only way the credit score can go up. People should not wait until the negative information is removed from their credit report. This could leave them with no score or a negative score. Along with the negative information, there should be positive information being added to the credit report. When the debts are repaid, instead of nothing left, there will be a positive score.
When a secured card is given, the credit limit may be very low. This should not offend people. It takes time to build up a good credit score, and, if a low limit is handled responsibly and repaid on time, it will help raise the credit score. After one or two years of repaying a low limit card on time, the borrower can request to have the limit raised.
It is not the size of the credit limit that will raise the credit score, but the regular repayments. It may only take a year to get a credit score high enough for a car loan or house mortgage.
People with a bad credit score in Canada can apply for a secured credit card. This type of card will be approved quickly, because there is a deposit that determines the limit of their credit. This protects the lender in the event the card recipient does not make their monthly payments. There are two main benefits for getting this type of card. One, it allows the person to buy online where items tend to be cheaper, and, two, if the monthly payments are made on time, it will help raise the person’s credit score even if there is negative information on their credit report.