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  • How to Rebuild Your Credit Blog Series – Part 4 Having Too Many Credit Products and Too Much Debt

    This is the fourth blog in a 4 part blog series about how to rebuild your credit. When you accumulate too much debt or have too many credit products, this can harm your credit. Credit card companies are aggressive, using marketing points programs, promotion and incentives to entice consumers to take out a credit card. Over time, it is not difficult to find yourself with several different credit cards with balances that are accumulating interest.

    If you want to know how to rebuild credit and you have several credit cards, your first step will be to close some of them. Some financial advisors will tell you that closing credit cards will actually harm your credit, when in fact in the long run getting rid of credit cards will increase your credit score. Having one or two credit cards is sufficient to have good credit so if you have more than that, closing some of them is a good idea. How you go about closing credit cards is the key.

    Firstly, closing all of your credit cards is not a great idea unless it is part of an overall plan to settle out your debt, and then taking out a single card to rebuild your credit. Simply closing down all of your credit cards without a plan to have a credit item to rebuild credit will reduce your credit score. If you have accumulated a lot of credit card debt and are working with a company to get rid of your debt with a plan to rebuild, then naturally it will involve wiping the slate clean (clearing and closing all credit card debt) and then starting fresh. In the absence of a financial plan to rebuild, closing all of your credit cards may reduce your credit score because you will not have credit reporting to your credit report. This is necessary to build your credit score because it shows new potential creditors, mortgage providers for example, how you pay your monthly obligations.

    Also, do not close out credit cards that have balances. If there are balances on credit cards you should first deal with the balances either by paying them off, settling them, or including them in a financial program to get out of debt. Once the balances are cleared, you can go ahead and close out the card. If you close cards when you have balances the result will be a credit card that has a balance and a zero credit limit and this will have the same negative impact on your credit report as if you have a credit card that is maxed out (see part three “Credit Balances That Are At, Close to or Over” in our four part blog series How to Rebuild your Credit).

    Additionally, if you plan to close out your credit cards make sure you write to the credit card provider clearly indicating that it is you who wants to close out the credit card balance. When a creditor closes your credit card they can report one of two things to the credit bureau: “credit limit closed by consumer” or “credit limit closed by credit grantor” – you do not want the latter reported on your credit report. Sending a letter will enable you to prove to Equifax that you in fact closed the card in the event that the credit does not report who closed the card accurately.

    This may all seem like good advice, but if you are drowning in credit card debt, closing credit cards right now is not really an option without a financial plan. Learning how to rebuild your credit takes time, as does dealing with accumulated credit card debt. There are fast and effective methods to deal with debt and start rebuilding your credit, but in most cases they will involve the assistance of a financial professional who can guide you out of your debt with a plan.

    If you would like more information about how to rebuild your credit or if you are in debt and need some guidance, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • How to Rebuild Your Credit Blog Series – Part 3 Credit Balances That Are At, Close to, or Over

    This is the third part in a four part blog series about how to rebuild your credit. Learning how to rebuild your credit begins with learning how to manage it. One major impact to your credit score is when you have credit card products that are close to, at, or over their limits.

    Many people think that the best way to build credit is to get a credit card, use it, and then make monthly payments. This is a dangerous proposition. How you manage each credit card will impact your credit score either by either increasing or decreasing it.

    Learning how to rebuild your credit means understanding how your credit habits can result in a decrease to your credit score. As a rule of thumb you should try to ensure that your credit card balance does not exceed 75% of your limit. If it does, it will not only reduce your credit score but will also trigger a message on your credit report that says “proportion of balances to credit limits are too high”. Even if you have 10 credit cards and only one of them is close to, at, or over the limit, it will negatively impact your credit score and trigger the above mentioned message on your credit report.

    If you have had bad credit in the past and are trying to figure out how to rebuild your credit you may see a secured credit card as one option, and financial professionals will often suggest this as a way to rebuild credit. When you take out a secured credit card, you will send the credit card company a deposit and then they send you a credit card with a limit equal to or less than the deposit you sent them. When you do this, that credit card has the potential to rebuild your credit. Re-loadable credit cards are not secured credit cards and do not rebuild your credit.

    When trying to rebuild your credit, if you take out a secured credit card it is likely that your secured credit card will have a smaller limit, usually $200, $500 or $1000. We discussed the issue of how much of an impact it can have to your credit if you have a balance on even one credit card that is close to, at, or over your credit limit. This is one of the most common mistakes people make when they take out a secured credit card. Capital One is a company that offers secured credit cards and often a first time secured credit card with Capital One will have a low starting limit of a couple hundred dollars. Even if the limit on your secured credit card is only $200, do not carry more than 75% of your limit as a balance. For example, if your secured credit card has a limit of $200, do not run a balance higher than $150.

    In other situations, when people begin nearing or going over their credit limits on credit cards, it is a sign of a deeper financial problem. It is very easy to get in over your head with credit cards. You may have a few credit cards and one month you may use one to make an expensive car repair, and then another month you may use another when you go on vacation, and then another month you may use another one to make repairs in your home. Before you know it you can have several credit cards with high balances and when interest begins to accrue they can become very difficult to pay off. Minimum payments barely cover interest and if you get caught in a cycle of only being able to afford the minimum payments it can take many, many, years to pay them off.

    If you want to know how to rebuild your credit and you have credit card debt and are only making minimum payments right now, it may be time to make some choices that will enable you to rebuild your credit. Sometimes it’s hard to know which choices are the right ones when it comes to dealing with your debt. There are many resources available to people who struggle with debt. Once you have dealt with your debt and are beginning the process of rebuilding credit, your best option when using a new credit card that is meant to rebuild credit is to use the card for limited expenses, such as gas, and only use as much as you can afford to pay off in full in a given month.

    If you would like more information about how to rebuild your credit, or if you are in debt and need some guidance, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • How to Rebuild Your Credit Blog Series – Part 2 Late Payments and Defaults to Creditors

    This is the second part in a four part blog series about how to rebuild your credit. If you have made late payments on your credit card or have defaulted on debts to creditors this will have a severe impact on your credit that will not resolve itself until you deal with the debt you owe. Many people think that late payments and defaults on debt obligations simply disappear after 7 years, but this is not the case.

    If you want to know how to rebuild your credit you will need to understand “tradelines” and how long items remain on your credit report. There are two different areas where credit is rated on your credit report. Your credit score, also known as your beacon score or fico score, is a number between 300 and 900 which scores your entire credit situation. 300 is the worst credit score and 900 is the best. Most banks like to see that individuals have a credit score of 680 or higher.

    The second area on your credit where you are rated is on “tradelines”. Each loan or credit card provider will report on their own tradeline how you have paid them. The tradeline will show the name of the creditor, the starting balance of the credit product, your repayment terms, your current balance, the number of times you have been 30, 60 or 90 days in arrears and an overall rating. If it is a credit card, there will be an R or an I with a number beside it. R is used for credit card and line of credit products and stands for revolving because credit cards allow you to constantly borrow against them. I is used for loans and stands for instalment because loans are repaid in equal monthly instalments.

    You may have heard people say that they have an R1 or an R9 on their credit report. The number beside the letter represents the current standing of the account. 1 means up to date, 2 means 30-60 days in arrears, 3 means 60-90 days in arrears, 4 means 90-120 days in arrears, 5 means 120 days to 150 days in arrears, 7 means you are in credit counselling, 8 means that you have had security repossessed and 9 means that the account is a bad debt (6 months or more behind). When you have an account showing a number from 2-5 beside the letter, if you pay the account up to date the rating on that tradeline will be restored to a 1, however the record of the late payment will still show. If your rating falls to a 9 it will remain a 9 until 6 years from the date that the creditor reports that the debt was settled or paid in full.

    If you want to know how to rebuild your credit, a fast trick will be identifying how bad your credit actually is. If you have a lot of debt, habitual late payments, or 9’s on credit items, then looking for ways to consolidate or settle your debts is your fastest road back to having good credit.

    Simply leaving defaulted-on items on your credit will not mean that they will magically go away by themselves. They will remain there for 6 years from the last date that the creditor reported to the credit reporting agency that you owed the money.

    There are fast avenues that you can take to rebuild your credit depending on the severity of the damage to your credit and the amount of debt you owe. For example, if you leverage a consumer proposal to settle your debt, a consumer proposal is removed from your credit report 3 years from the date it is paid in full, which can in many cases result in the removal of a 9 rating faster than if you paid the debt in full. In addition, when 9 ratings are present (and where funds are available) you can often make a direct settlement with your creditor for much less than you owe which makes good sense considering that once a 9 rating is present whether you settle the debt or pay it in full the 9 rating will remain on your credit for the same amount of time.

    Figuring out how to rebuild you credit will begin with requesting your credit report so that you can know what is on it. From there you can work with a financial professional who can come up with the fastest solution to deal with your debt and rebuild your credit.

    For more information about how to rebuild your credit or if you are in debt and need help, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

  • How to Rebuild Your Credit Blog Series – Part 1 Too Many Applications for Credit

    This is the first part of a four part blog series about how to rebuild your credit. Many people don’t realize how important credit is until it is damaged. Once credit is damaged, it takes a long time to rebuild, and if you want to know how to rebuild your credit the first thing you will need to know is what is in your credit report. If you want to rebuild your credit, the first thing that we recommend is to request your credit report from Trans Union and Equifax. Trans Union and Equifax are the credit reporting agencies that your creditors report your credit habits to.

    The next thing you will have to do if you want to know how to rebuild your credit is to know the top four things that will reduce your credit score. These include late payments and/or defaulting on a credit card payment, too many applications for credit, having credit card balances that are close to, at, or exceeding the credit limit, and having too much credit or debt.

    The number of applications for credit speaks to the number of times in a given calendar year that you have applied for credit. Generally speaking, it is ok to apply for credit 4 times per year. Many people don’t realize that when you open a bank account, apply for insurance, etc., the company may pull your credit report. Companies are supposed to have you sign a consent form when you apply for services, and you are required to give them permission to pull your credit. With that said, sometimes people apply for services online or over the phone and it is not made clear by the company that they will have to request a credit report in order to provide services. Other examples of situations where someone might want to pull your credit include when you are applying to rent an apartment or when you are applying for a job.

    Another instance where your credit may be requested is when you apply for a credit product (such as a credit card) and you sign the terms and conditions document. Included in the document may be a provision that the company is allowed to pull your credit in the future to qualify you for future credit products, or in the event that you default on your payments. We have seen instances where a creditor has pulled a consumer’s credit report many times per year just to see if they qualify for a credit limit increase or other credit products. If you request your credit report and notice that a company that you have a credit product with has requested your credit report many additional times, you may want to consider sending them a letter telling them that they no longer have your permission to access your credit report without fresh written consent.

    If you have defaulted on a debt to a creditor, this can result in multiple inquiries being made about your credit by both your creditor and the collection agencies that they have hired to collect the debt from you. This is then used as a source of information to find out how to reach you, who you owe money to, where you work, and more. They will continue to pull your credit until you have made satisfactory arrangements with them.

    If you have requested your credit report and see more than 4 inquiries within the last calendar year, this will reduce your credit score and you should stop applying for credit for at least 12 months from the date of the most recent inquiry. If the inquiries relate to defaulted debts, we recommend working with a financial professional to address the debt on your credit because until you do so, not only will the inquiries from your creditor and collection agencies continue to harm your credit, but you may also end up with derogatory ratings and even collection items.

    If you would like more information about how to rebuild your credit or if you have a financial problem that you need help resolving, please call DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Canada Revenue Agency Forms and Requests: – Beware

    If you have a tax debt that you cannot pay in full, you should be very careful dealing directly with the Canada Revenue Agency (CRA). In fact, many agencies, including law firms, advise people who have large tax debts not to deal with the Canada Revenue Agency directly.

    Why? Because CRA agents are hired by the government to collect the tax debt from you. Their primary objective is to close your file and that will only happen in one of two ways: pay the tax debt you owe, or file a consumer proposal or bankruptcy.

    The Canada Revenue Agency has many tools in its arsenal to collect your tax debt. These tools include garnishing your wages, freezing your bank account and placing a lien on your property. They cannot however take these enforcement actions against you unless they have done their homework. For example, they can’t freeze your bank account unless they know where you bank, they can’t place a lien on your home unless they know you own a home, and they can’t garnish your wages unless they know where you work.

    Of course, the Canada Revenue Agency does have its own ways to find this information, but sometimes you can be your own worst enemy in this regard. Many people want to make payment plans with the Canada Revenue Agency to pay their tax debt and will directly contact the Canada Revenue Agency to attempt to do so. The CRA always wants to be paid in full. Generally they won’t accept a long term payment plan unless it involves paying off the tax debt within 24 month, which many people are unable to do when they have a large tax debt. This is where Canada Revenue Agency forms and requests come in.

    Say for example you owed $40,000. Over 24 months, your monthly payment would be $1,666 per/month but you can only afford to pay $500 per/month. When calling the Canada Revenue Agency they may indicate that they are willing to accept a temporary 3-6 month payment plan based on $500 per/month if you fill out a Canada Revenue Agency form providing financial disclosure. This form will ask you about your income, income sources, expenses, assets, liabilities, where you bank and more. Once they receive your financial disclosure, they may disallow payments for expenses that do not include shelter, food and transportation and then demand a much larger monthly payment. They may accept the lesser monthly payment for 3-6 months but the danger is that if they demand more, or when the short term payment plan you negotiated expires, the CRA will have all of your personal financial information that you provided in the Canada Revenue Agency form and can proceed to take enforcement action against you. Don’t get caught in this trap.

    If you owe money to the Canada Revenue Agency there are solutions available to you. If the CRA has presented you with one of these Canada Revenue Agency forms for financial disclosure, seek professional help immediately. A seasoned financial consultant with experience dealing with the Canada Revenue Agency can help you negotiate a repayment arrangement that you can live with and help you protect your personal information.

    For more information about Canada Revenue Agency forms and requests to beware of or if you need help with a tax problem, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

  • How to Make a Credit Card Debt Settlement

    When credit card debt begins to build up it can become very difficult to pay off. Credit cards bear monthly compound interest so if you get into a routine of making minimum monthly payments, the interest can sometimes be as much as the payment that you make. The end result is that you make a minimum payment and then once the interest is applied to the balance, you end up owing the same amount as you did before the payment.

    If you start missing payments the balance increases and late fees may also be added to the balance, making the debt grow even larger. This can start a vicious cycle that can result in the credit card debt going to collections and destruction of your credit.

    There is no magic bullet for dealing with credit card debt. Your options are really to come up with the money to pay it off, borrow the money to pay it off, make a credit card debt settlement, or file a consumer proposal or bankruptcy.

    Before choosing an option to deal with your credit card debt you must look at many factors as you want to make sure that you select the option that will help you to achieve your long term financial goals. Why are you having a problem paying the credit card debt in the first place? Often times people stop being able to manage their credit card debt because of a lack of cash flow. If you are at the point where you cannot manage your credit card debt payments because of a lack of income then you may want to look at ways to reduce the credit card debt before you start trying to come up with a way to pay it off.

    The state of your credit report is also an important consideration when trying to come up with a plan to pay off credit card debt. If you fully defaulted on the debt (have not made a payment in 6 months) or have made habitual late payments, your credit report is likely to be in bad shape. Once your credit report is compromised, (whether you pay off the credit card debt in full or make a credit card debt settlement) there will be no difference in how long it takes to rebuild your credit. There will however be a major difference in how much it costs you to pay off the credit card debt.

    A credit card debt settlement can be achieved through a financial consultant who can make a credit card debt settlement directly with your creditor or through obtaining the assistance of a trustee to make the credit card debt settlement through a consumer proposal. The credit card debt settlement option will depend on many factors including your income, employment, financial goals, the amount of debt you have, the liquid cash available, and the number of creditors you have. If you want to make a credit card debt settlement, work with a financial consultant. He or she will be able to interpret your entire financial situation and come up with the best plan for you.

    For more information about how to make a credit card debt settlement please contact Michael Goldenberg by calling DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

  • The Canada Revenue Agency Consequences of Missing the Income Tax Deadline

    In Canada, this year’s Canada Revenue Agency (CRA) income tax deadline was April 30th, 2012. The CRA’s income tax deadline is the last date that individual Canadian taxpayers can file their annual income tax returns with the CRA without incurring penalties and interest. Corporations are not subject to this deadline and have their own year-end filing dates.

    If you file your income tax return after the income tax deadline of April 30th, 2012 and you owe tax, the amount that you owe will be subject to interest and penalties. Penalties and interest are calculated based on the length of time it took for you to file following the tax deadline.

    The Canada Revenue Agency will apply a penalty equal to 5% of the balance owed. For the next 12 months, an additional 1% will be owed each month that passes that your tax return is late. Repeat offenders (those who filed their income tax returns after the income tax deadline in 2008, 2009 or 2010) could be subject to a penalty of up to 10% and for the next 20 months, an additional 2% of the balance owing for 2011 for each month that your income tax return is late.

    Penalties and interest are calculated separately. If you miss the income tax deadline, the Canada Revenue Agency will charge you daily compound interest beginning May 1, 2012 on any amount owing for 2011 that is not paid. The CRA will also apply the same interest to any penalties they have assessed.

    It doesn’t pay to ignore late income tax return filings. Eventually you will have to file and will be subject to the penalties and interest retroactively. Failing to file your income tax return is tax evasion and eventually the Canada Revenue Agency will catch up with you. Depending on how many years you haven’t filed they could prosecute you for tax evasion.

    Notional assessments are more common. A notional assessment occurs when the Canada Revenue Agency estimates how much income that they believe you earned based on tax slips filed by others or on returns you filed in previous years. When this happens, the Canada Revenue Agency essentially prepares a return on your behalf and then calculates how much tax you owe and assesses interest and penalties based on their income estimate.

    Most individuals who miss the income tax deadline do so because:

    • They don’t think they owe taxes
    • They are busy and it slips their mind
    • They know that they will owe and don’t have the money      to pay

    If you fall into the third basket there are financial solutions that can assist you. Simply ignoring your income tax problem will not make it go away. Over time, the size of the tax debt, interest, and penalties will continue to grow and the Canada Revenue Agency will become more aggressive in their efforts to force you to file and collect your tax balance. The faster you face it the faster you can get back on track. If you are behind filing for many years, it is never too late to become tax compliant and deal with your tax debt.

    For more information about the income tax deadline, interest and penalty calculation, or if you need help to deal with late income tax returns and income tax debt, please call DebtCare Canada 416-907-2582 or visit www.debtcare.ca

  • Canada Revenue Agency Collections Authority and How to Stop Them

    Thousands of Canadians owe money to the Canada Revenue Agency. Thousands more will fall behind filing their tax returns, hoping that by not filing their returns they can buy time to come up with a way to pay the tax that they know they will owe.

    What many people don’t realize is that whether you file or not, the Canada Revenue Agency can still take collection action against you if they believe you owe them money. Whether you file or not, the CRA could have tax slips on file, filed by others who have paid you and based on that can notionally assess you, make their own determination as far as how much income they believe that you earned and then take enforcement action accordingly. In fact, the Canada Revenue Agency can even proceed with enforcement action against you without notionally assessing you. The Canada Revenue Agency collections agents will often leverage enforcement actions to force you to file or comply with whatever information they are requesting from you.

    The size of an individual’s tax debt will in many cases be the result of his or her conduct. An individual who files his or her returns late, fails to declare income and has his or her returns re-assessed or audited will be subject to Canada Revenue Agency interest and penalties. This can, in many cases, double and even triple the size of the tax debt depending on the individual’s record with the Canada Revenue Agency. Each time a taxpayer is not compliant the Canada Revenue Agency records the non-compliance and the next time there is an infraction, the penalties are increased. Interest charged on Canada Revenue Agency debt is high and compounds daily.

    Once the Canada Revenue Agency collections department has decided to target you, they are able to deploy enforcement measures that can cause personal embarrassment and financial hardship. The most common enforcement measures deployed against individuals by Canada Revenue Agency collections agents are wage garnishments (50% of gross employment income and up to 100% of secondary income), property liens and using a document called a “Requirement to Pay” to freeze bank and investment accounts. Where businesses are concerned, the Canada Revenue Agency collections agents will commonly freeze bank accounts but also send notices to the businesses’ clients directing them to forward payment of all invoices to the Canada Revenue Agency. This is very similar to a wage garnishment, only instead of the Canada Revenue Agency collecting 50% of your income in this case, they can collect 100%. This measure forces many businesses out of business.

    If you owe money to the Canada Revenue Agency and can pay, great! But, what happens if you owe money to the Canada Revenue Agency and can’t pay?

    Consumers and businesses also have avenues that they can take to potentially reduce the amount of money that they owe to the Canada Revenue Agency. Programs like the Voluntary Disclosure Program enable Canadians to voluntarily declare income with the potential to avoid interest and penalties. Relief provisions enable clients who have a medical problem, financial hardship or have faced some other extraordinary circumstances to file an application to have some or all of the interest and penalties associated with a tax debt cancelled.

    The Canada Revenue Agency will not allow a consumer to directly propose a settlement on a tax debt. With that said, a consumer or business can stop Canada Revenue Agency collections action through Federal Government programs. When a consumer participates in a Federal Government program, the CRA in most cases will immediately cease collection action. Federal Government programs under the BIA are the only way that a consumer can reduce a principal tax debt and get a fresh start.

    Whether you owe a tax debt, think you will in the future or if you think that you cannot pay, you are best advised to seek professional help before the Canada Revenue Agency collections department begins to take action on your file.

    For more information about Canada Revenue Agency collections and how you can stop them please call DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Sued in the Small Claims Court? What Happens Next?

    There are over 90,000 new Small Claims Court Actions filed in Ontario each year and more than 150,000 Small Claims Court actions filed throughout Canada. Small Claims Court actions are usually filed by creditors like banks, finance companies and the collection agencies who represent them.

    Court Actions are also filed by individuals and businesses who are suing one another for a particular incident or contract dispute.

    In most Provinces including Ontario and British Columbia, a Small Claims Court action can be filed for up to $25,000.00. In most Provinces, the Small Claims Court process is as follows:

    1.       One party files a claim against another party.

    2.       The other party can then file a Defense.

    3.       If no Defense is filed, the party who initiated the claim can apply for default judgement.

    4.       If a Defense is filed, the parties will then attend a pre-trial conference and if they are unable to settle the matter, the case will proceed to trial. At trial, if the party who initiated the claim is successful he will be awarded judgement.

    Once a judgement has been awarded, the party who has the judgement can then take enforcement action using a variety of Small Claims Court remedies. They can file the judgement with the Sheriff’s office so that in the future if the individual tries to apply for financing (like a mortgage) and an execution search is performed, the individual will be required to pay off the judgement before he can obtain his financing. The party who holds the judgement can also apply for a wage garnishment. When this occurs a “Notice of Garnishment” will be sent to the debtor’s employer requiring the employer to remit 20% of the debtor’s net earnings to the Small Claims Court. The employer cannot refuse to honour the garnishment or else the debt could effectively be transferred to the employer and then he could owe the money.

    The party who holds the judgement can also file a lien on the debtor’s property, like a home or vehicle, and can also send notice to the bank to have their bank account frozen. They can call an assessment hearing requiring the debtor to attend the court and disclose their assets, earnings and more…

    If you owe money to your creditors and are in default, don’t let things go this far. It is better to work with a debt consultant who will work with your creditors to come up with a plan to deal with your debts. If you have already been sued in the Small Claims Court, have had a judgement issued against you and enforcement action is being taken, you have options. There are Federal Government programs that can be accessed through a debt consultant that will stop enforcement action issued by the Small Claims Court. Coming up with a plan to deal with debt owed to creditors will enable you to avoid the stress, embarrassment and financial hardship that can accompany a Small Claims Court action and provide you with a road map to financial recovery.

    For more information about what to do if you have been sued in the Small Claims Court please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.