Have you ever taken a good, hard look at how your Bad Credit credit score has impacted your life?
Without knowing what you qualify for, things can get messy – and if you’re struggling with a bad credit score, you know that fixing it is no easy feat.
Bad credit is not uncommon, although, only 2.85% of Canadians have an extreme risk rating of 559 and under, while 15% of Canadians struggle with a fair rating of 560 – 659.
This means that over 6 million Canadians have less than good credit.
The fact of the matter is, your credit history can not be fixed overnight, however, you can choose to determine the root causes and create a plan of action.
Here, we’ll discuss the five steps to rebuilding your credit in Canada and how auto financing can be just the solution you’re looking for.
Step 1 – Check Your Credit Score
In Canada, you can get a free credit report by ordering from two Bad Credit credit bureaus: Equifax and TransUnion. As both companies keep separate information on file, it’s a good idea to get a copy of your credit score from both sources. This will allow you to report any errors that don’t match up.
Only a sliver of people have an absolutely terrible credit score. That’s why it’s important to know your credit rating prior to walking into a dealership and purchasing a vehicle.
Credit scores in Canada currently range from 300 points (low-end) to 900 points (high-end). Finding out that your credit score is above 660 will allow you to apply for a standard car loan, while 725 and higher will allow you to apply for financing at a lower interest rate.
So, if you’re stuck in the fair category or lower, repairing your score may seem like a long shot. And while it’s not easy, it can be done.
Step 2 – Improve Your Score
Here’s where things get a little confusing.
See, the way to rebuild your credit is by paying off a loan – this shows the banks that you’re reliable and can be trusted. However, getting approved for a loan if you don’t have good credit can be problematic.
This is where your Equifax and TransUnion report comes in handy. Finding out why you have a low score is your first step to fixing it. Let’s take a look at some scenarios:
Careless Credit Card Usage
Since Bad Credit cards are the first type of loan most Canadians apply for, it’s easy to get off track. And that’s where the matter of your credit history becomes involved, see, every time that you forget to pay a bill on time, a report goes straight to the credit bureau. The most common behaviours include:
- Late payments
- Partial payments
- Not paying at all
- Constantly having a high balance
- Maxing out your credit cards
- Failing to pay your bills for 6 months or more
All these behaviours are tracked for up to 7 years, meaning a lender is less likely to approve you for a loan or will gauge you for higher interest rates if your credit is poor.
Defaulting on Loans
The second most popular cause for poor credit is missing out on mortgage or car payments. Since these types of loans are secured, the lender may repossess your home or vehicle to remedy the loss. Similar to credit cards, this will stay on a credit report for up to 7 years.
The declaration of bankruptcy is another common cause of poor Bad Credit. Depending on whether it’s your first or second time declaring the status, your credit report may suffer from 7 to 14 years. Be sure to consult a trusted advisor prior to going down this route.
The Bottom Line
Planning ahead and creating a monthly budget is a great way to pay off debts and allocate the rest towards savings. If your monthly payments outweigh your monthly income it’s time to take a step back and fix the problem immediately.
Once you’ve begun budgeting accordingly, decreasing your credit card debt and late payments should be a number one priority. A maxed-out credit card is a significant factor contributing to poor credit for many Canadians. Paying off 50% of your limit is not only advised but will save you more money in the long run, as less interest is accumulated.
Paying off old bills and paying new ones on time, even if slowly, is another necessary step to repairing your credit score. If you’re feeling overwhelmed, reaching out to a credit counsellor to consolidate your debt into an affordable monthly loan in an excellent choice.
Step 3 – Can auto financing improve your credit score?
In a word, yes.
Auto financing is a great option for credit rebuilding as it helps establish a positive payment history with the credit bureau on a monthly basis.
And contrary to popular belief – bad credit doesn’t have to result in a bad car loan. In fact, your chances of buying a car with bad credit rely solely on working with the right lenders and certified car dealerships.
Loan providers like The Auto Providers, understand the necessity of having a vehicle. That’s why our bad credit and low-income program is designed to connect you with dealerships who approve car financing with a bad credit history and consider factors outside of your credit score.
In order to qualify for auto financing with a good interest rate, an income of $1,800 every month prior to taxes or deductions is required. Other forms of income such as ODSP, government assistance, child tax benefits, spousal income can also be used to apply.
Here’s what income requirements you should look out for:
|Hourly Income||$10.50 or more an hour for 40 hours per week|
|Weekly Income||$420 or more per week (before taxes)|
|Bi-Weekly Income||$845 or more every two weeks (before taxes)|
|Bi-Monthly||$900 or more twice per month (before taxes)|
|Monthly Income||$1,800 or more per month (before taxes)|
If you fall under the minimum requirements, having a down payment or a co-signer can significantly help. However, if you need a car immediately and savings or a co-signer aren’t a viable option, you can still get approved.
To learn more about auto financing options, visit our blog “Auto Loan Options for Canadians with Bad Credit.”
Step 4: Find a vehicle in your budget
The internet is your best resource for finding a car that fits both your budget and lifestyle. Once you know your monthly expenses, it’s easy to estimate what you can and can not afford.
While you may be tempted to overspend, your vehicle should not cost more than 35% of your yearly income. Avoiding all the extra frills and tech features is another way to save money on your monthly bill. Remember to always budget accordingly for gas, vehicle insurance and dealership fees and always be on the lookout for zero down options.
Step 5 – Drive Away Happy
At The Auto Providers, our bad credit program covers Canadians in the following situations:
- Bad Credit
- No Credit
- Missed Payments
- Late Payments
Our 60-second application process is designed to connect you with a dealer in your area who will provide you with both a vehicle and an affordable auto loan. We are partnered with hundreds of car dealers across Canada, so we can guarantee a dealership within your neighbourhood. In fact, if you can’t find us in your area, we’ll deliver the vehicle to your door!
Finding an affordable vehicle has never been easier, apply with us for free and get started on rebuilding your credit today.