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Tag: credit products

  • Divorce and Debt – A Match Made in…

    Divorce and debt, debt and divorce; the two really go hand-in-hand. Debt and financial problems are one of the leading causes of divorce in Canada. When couples divorce and debt is present one or both parties can find themselves in severe financial turmoil.

    Divorce and debt are a toxic combination because when couples divorce they can no longer share living expenses and each will have new living expenses in addition to monthly payments on debt. In a divorce, the higher income earner may end up having to take more responsibility over the debt. In other cases, the lesser income earner may agree to take responsibility for the debt in order to gain assets such as the home. One party may end up having to make spousal or child support payments. Whichever way you look at, getting divorced is expensive and both parties can end up with serious financial consequences.

    If you are getting a divorce and debt is present, seeking financial guidance will be very important. The financial guidance you need may vary.

    Perhaps you are not the spouse who was responsible for the monthly household bills. Learning how to manage a budget will be important if you want to come out of your divorce with your credit and finances intact. Budgeting is eye opening because it reveals exactly how much money you spend each month and on what, as well as how much disposable income you have left once your bills are paid. Budgeting can reveal potential future financial problems that you may face before they emerge and become an emergency. Budgeting also plays a key role in ensuring that all payments to creditors get made on time each month.

    Perhaps you are exiting the marriage in debt. This is a trickier problem because if you have gone through a divorce and the debt that remains is unmanageable, this can impact not only your credit but also your quality of life. Even if you are able to manage your minimum monthly payments, the overall amount of debt may be too much to pay off in any reasonable amount of time. If this is the case, it may be time to come up with ideas to speed up the amount of time it takes you to get out of debt.

    The type of debt that you have and amount of debt that you have will play a major role in the type of financial solution that you choose to deal with your debt. Secured debt is different than unsecured debt, and even some secured debts can be managed as part of an overall financial plan that will get you out of debt. If you are struggling with debt after a divorce, your financial plan may include consolidating your monthly payments into one and freezing the interest on your credit products. The interest on some credit products, like high interest credit cards, can make them impossible to pay off. Once the interest is frozen, these debts become much easier to repay. Some financial programs also may involve reducing the overall principal of the debt that you owe.

    The best thing you can do in the aftermath of a divorce to deal with the debt that has resulted from the divorce is to seek financial guidance from a financial professional who can represent you in the restructuring of your debt to give you a fresh start.

    For more information about divorce and debt please visit www.debtcare.ca or call 416-907-2582.

  • 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.