I've have been consulted on quite a few occasions lately on peoples financing problems: Everything from, "I want to buy but I have very bad credit" to "I'm about to go into foreclosure" so what are my options?
Well, I strongly believe that education is key. Though I am not an expert in this field, I do know a whole lot more than the average person when it comes to financing and credit.
If you have bad credit or no credit at all, you have to understand how that happened and then how to fix it or how to build your credit. A credit score may range from 300-900 (the higher your score, the less of a credit risk you are). Generally, a good credit rating is in the 600s and excellent credit rating is in the 700+ range.
- go to www.equifax.ca to get your credit report: you can obtain it for free by mail or get it instantly in pdf form for about $25 CAD.
How to start building/fixing your credit score?
- Building a credit score: this is easy...just apply for a credit card (secondary cards from your spouse does not count) in your own name and try not to go over 35% of your credit limit (going over may negatively effect your score and very few people know about this). Use it regularly and pay it off when due or at least the minimum.
- Fixing your credit score: Sit down and look at all the debts you have...YES, this is very necessary... you can't fix it if you choose not to see what's going on.
- Look at the interest rate that you are paying on each debt
- Pay the minimum payment amount on each debt and put whatever you can towards the one with the highest interest rate (this is called debt stacking)
- Once you have paid off the debt with the highest interest, move on to the next highest interest debt and do the same. Repeat until all debt is paid off
- If you have a line of credit...utilize this like you do a bank account: all your income will be deposited in this account and all your payments will come out of this account. Your chequing and savings account can now be closed. This will not only eliminate your bank charges but will also minimize the interest paid in your line of credit and you will have more money left over for your other debts.
- If possible, set up your accounts on an automatic payment system so that you don't miss another payment and have another interest charge on top of what you already pay...an unecessary expense.
May be going into foreclosure? Question is, where can you find the extra money to pay for your expenses or where can you cut on your monthly expenses?
- Where to find extra money: Refer to the above for interest saving tips. This will help you find that extra little bit of money without changing your lifestyle
- What can you cut out of your monthly expenses: this is usually a more challenging task as everything always seems necessary so I have been recently introduced to using coupons and there happens to be a lot of coupon site around for you to start saving on the expenses that you already have in your monthly expenses and here are some of my favorite sites:
Also, did you know that you can make arrangments with your bank to skip a mortgage payment or two each year. This allows you to try to get back on track as your mortgage is usually the biggest monthly expense. You should know that this will get tagged onto the mortgage and you will be paying more interest so this should be used as a last resort. Contact your mortgage rep for more details.
You can also see if you can reduce your monthly mortgage payments. This can usually be done if you are on a variable rate mortgage and you have paid a lot more into principle and therefore ahead of your payment schedule. So what they do in this case, is they will extended it back to where you should be at according to their payment schedule and therefore, your monthly payment amount will decrease. When you do have extra money though, it is adviseable that you put it toward your mortgage as it will signicantly reduce the amount of interest that you will have to pay in the end.
Please let me know if you have found this information informative or if there is anything you would like to add or know about. I appreciate your input.