Red Deer residents trying to recover from a bad credit event like a bankruptcy or consumer proposal should do everything they can to repair the damage. The question they face is: how?
The simplest solution is to open two new credit facilities, using them and paying them off. One tactic is opening two low limit secured credit cards. After a while, you can open small unsecured lines of credit or credit cards.
How do you get a secured credit card?
Most banks will not offer secured credit cards. However, a few do have this product. You just have to ask. These products tend to be offered to those without an established credit history, but you might get an exception in your case. You’ll have to make your case. You’ll also have to put up the collateral to get their secured credit card. If they approve you, the collateral is invested in a GIC or term deposit.
Why should you use a secured credit card?
As your credit recovers, you’ll be left with the credit you have in place. It will be easier to raise the limit on these cards than get a new credit card. After several years of good payment history, the bank may return your security deposit while leaving the line of credit in place. Furthermore, the card in good standing is improving your credit history the entire time.
Note that re-established credit size matters. A five year old $300 credit card doesn’t matter when you’re asking for a $30,000 car loan.
This means you have to increase the credit limit when you can. However, you’ll get in trouble if you promptly spend it all or fail to pay it, so use your credit wisely. Wait until you have more money to cover the higher credit limit before you raise it. With time, you could have a $2000 or higher credit limit, and that is the point where creditors start to consider issuing larger loans to you. You may even be able to leverage that established deposit to get a $3000 or greater line of credit secured by your original $500-2000 deposit.
How can you get the limit increased?
- Never go over the limit, no matter how small it is.
- Use the card frequently.
- Pay it off on time and in full every time.
- If that’s not possible, never go over 30 percent of your limit with any single purchase.
- Get in the habit of regularly paying it off throughout the month so you don’t miss the payment.
Do all of this, and they may increase your credit automatically each year. The right credit cards will then automatically improve your credit because the available line of credit is increasing.
How much new credit do you need?
An easy answer is as much as possible. However, that may be what got you into trouble in the first place. This is why we recommend growing slowly based on your ability to pay.
As you’re repairing your credit, slowly cultivate new credit. This could be a new phone on payments or a secured credit card. The point is to have a new one because this shows you’re able to do more than pay your previously existing bills. That has extra weight with Red Deer mortgage lenders.