Establishing Your Credit After Financial Difficulties

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Establishing your credit after financial difficulties is no easy feat. It’s time consuming and takes a lot of persistence. In today’s post-crisis economy, good credit isn’t just nice to have — it’s essential if you want to level the playing field with lenders. Until the financial crisis hit, a 720 FICO credit score was enough to get the best loan terms. Even people with lower scores could get decent deals, and at the peak of the lending boom it seemed that no score was so low that it merited a rejection. These days, lenders typically demand higher scores for the best mortgage rates. Lower scores mean higher rates or perhaps no loans at all. Canada’s largest mortgage insurer, the government run Canada Mortgage and Housing Corporation, has guidelines in which a borrower with a credit score of lower than 680 has significantly stricter lending requirements than a borrower with a stronger credit rating.

As lenders continue to tighten credit requirements, getting a good interest rate or a loan at all – requires that you understand how the scoring system works. Many borrowers never understood how credit worked before they got into financial difficulties, so knowing what approach to take makes establishing your credit much simpler.

Clearly, cultivating good credit scores is an essential 21st-century skill. The good news is that it’s possible to boost your numbers if you have a handle on your finances and you know how credit scores work. After all, the median credit score is 720 on the 300-to-850 FICO scale.

In terms of establishing your credit after financial difficulties, I came across a great company called CreditSpark that’s strictly in business to help you rebuild and re-establish your credit. They’re not your standard lender, where you borrow money, they give you the cash so you can blow it and you pray that you make all the payments on time so you get a positive credit review.

What’s different with CreditSpark is that they’re not only Canadian (based out of Kingston, Ontario), but they have a 5-step plan to help you re-establish your credit.

Step 1 – Determine how much loan you’re comfortable paying back on monthly basis, and apply online through their secure web portal. The application process is straight forward and even those with a consumer proposal or bankruptcy can apply before they’re discharged.

Step 2 – This is what makes CreditSpark different – after you’ve been granted the loan, they take the money you intend on borrowing and with it buy a GIC. That’s right, a Guaranteed Investment Certificate. The GIC is held with a large financial institution in trust for you so your money is safe.

Step 3 – Monthly payments are set up on a pre-authorized payment plan so you won’t miss a payment, and every month CreditSpark reports back to your credit profile of your on-time repayment.

Step 4 – Upon the completion of the repayment of your loan, you get your savings (the GIC principal and the GIC interest) transferred to your bank. Now you have funds to use towards a down-payment for a house or a car, or just as a rainy day fund.

Step 5 – Your credit history is re-established, and if you have a perfect repayment history on your CreditSpark Savings Loan (and other debt), you may not be deemed as a high risk borrower anymore. You can then get more attractive rates from lenders, and more importantly your self-esteem will be on a high again.

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Comments

  1. Very interesting Eddie. I agree with the premise, but I was not familiar with Credit Spark. I will check them out. Last year I wrote a post called Reestablish your credit. Interested readers can find it, and similar articles, at http://ow.ly/gLPMz

  2. Eddie, you are certainly correct about establishing a good credit takes time and persistence. I’ve coached many people about how to do this and it comes down to being proactive about your credit and knowing how credit reporting works. I haven’t heard of creditspark either, but the key point is that to rebuild credit, you need to get credit. And the credit you get must regularly report your transactions.
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