Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.
Mistakes happen. Perhaps you’ve missed a few payments, maxed out a credit card, or have an account that’s been sent to collections.
Unfortunately, these seemingly small mistakes can be the difference between a great and a problematic credit score.
The good news is that your credit score doesn’t have to stay stuck.
Below, I’ll share some simple tips to help you fix your past mistakes, get negative items removed from your credit report, and rebuild a fresh, more positive credit profile.
The effect of credit mistakes on your score
Marriage and relationship counsellors often quote the “magic” 5:1 ratio - the idea that for a relationship to be successful, each negative interaction should be balanced by at least five positive interactions.
While it’s not an exact ratio, the same principle largely applies to your credit profile.
You can do everything right (pay your bills on time, keep your credit utilization rate low, etc.), and your score will slowly increase over time.
However, the one mistake you make (a 30-day late payment, maxing out your credit card) can cause a drastic overnight drop in your score.
Negative marks on your TransUnion or Equifax credit report will typically remain for six to seven years, acting like anchors that hold your score back, even if you’ve done everything right since your mistake.
While negative marks can often be corrected or deleted, this process can often take months or years, making it imperative to avoid them as much as possible.
How do I increase my credit score?
You’ll find no shortage of credit myths on social media designed to give you false hope or fill you with fear. That said, here are the most practical, time-tested ways to help you fix your credit.
1. Check credit report for mistakes
Your credit report often isn’t as infallible as you may believe. This is why it’s important to check your credit reports from both Equifax and TransUnion periodically. Sometimes, lenders or creditors you work with can make mistakes resulting in misreported negative marks on your report, bringing down your score.
For example, I’ve had friends who’ve made all of their payments early or on time, only to find out later that the lender misreported a late payment due to an administrative error.
By law, Equifax and TransUnion are required to provide Canadians with free credit reports (updated monthly) upon request. If you want even quicker updates, both credit bureaus also offer paid credit monitoring services that will update you in real time as your credit report changes.
If you find any mistakes on your credit profile, you should contact both the lender and the credit bureaus to clear the issue up and get the negative mark changed on your credit report.
2. Pay down credit card balances
Even if you have no missed payments and make all of your monthly payments on time, a high credit card utilization rate can bring your score down, as it shows irresponsible use of credit.
Ideally, you should try to keep your revolving credit utilization rate under 30 per cent. For example, if you have a $10,000 credit card, you should avoid carrying a balance of over $3,000 into the next billing cycle.
If you have cards with a balance of more than 50 or 60 per cent of their spending power, paying these balances down can be a quick way to get your score back on track.
3. Avoid new credit inquiries
New credit inquiries, especially when applied for frequently in a short period of time, can deal a sharp blow to your credit. This is why realtors caution new home buyers to avoid applying for any loans or credit cards until they’ve closed on their house.
Whenever you apply for a new credit card, a loan, or a rental unit, you’ll receive an inquiry mark on your credit report that will remain on your report for two years. Ideally, you should try to keep your inquiries to fewer than two or three in a one-year period.
4. Consider a debt consolidation loan
If you are in a very difficult situation, such as facing bankruptcy or falling far behind on payments, a debt consolidation loan could be an option to explore. This is a special type of personal loan that combines multiple debts into one more manageable payment.
Instead of juggling several high-interest accounts, you would make a single monthly payment, often at a lower interest rate. This simpler structure can help you stay organized and avoid missed payments.
Keep in mind that applying for a debt consolidation loan can cause a temporary drop in your credit score because of the hard inquiry and the new credit account. However, if the alternative is bankruptcy, consolidating your debt is often the better choice in the long run. It can help protect your credit from more severe damage and set you up to rebuild your score over time.
Debt consolidation loans are usually best suited for serious financial hardship, not minor cash flow issues. It is important to review all your options and speak with a financial professional before deciding
5. Get a secured credit card
If you’ve shot your credit and blown your chance at being trusted with a traditional credit card, the best way to rebuild trust with creditors is to apply for a secured credit card. These work a lot like prepaid debit cards, and you start by “reloading” them upfront.
The difference is that each time you reload your secured card, you’ll receive a positive credit card payment mark on your report.
How long does it take to fix your credit?
Repairing your credit isn’t an overnight process, especially if you have accumulated multiple negative marks over a long period of time.
In a best-case scenario with just a couple of negative marks on your report, you might be able to get mistakes removed or deleted within a few months. For more complicated cases, credit repair can easily take a year or longer as you go back and forth with creditors and credit bureaus.
That said, the alternative is waiting six or seven years for negative marks to gradually fall off of your credit. While credit repair can be tedious, it can also fast-track the process of getting back on top of your personal finances.
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