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my money coachHas debt ruined your credit?

by Tim St. Vincent

Is your debt ruining your credit? Seems like an odd question at first, but they really are two entirely different things. Credit doesn’t cost you anything. It is only when you use it that it becomes debt, and then the costs can be devastating, if not looked after properly. Trying to keep your debt under control is almost a national past time with 50 per cent of Canadians saying that they are living paycheque to paycheque.

Having problems keeping your credit score healthy as a result of debt is a struggle many Canadians are facing as they find that their debt is effectively killing their credit. The thought of fixing your credit can be scary, but it doesn’t have to be and it certainly isn’t impossible. At the same time, it’s important to realize that there’s no such thing as a quick fix for your credit – no matter what the credit repair companies tell you. Every missed payment, every late payment is recorded with the credit bureaus. No fee you pay can hide, alter or change that. The good news is that without paying expensive fees to anyone, you can improve your credit on your own.

How do you fix your credit? Well, the answer to that is the easy part. To fix your credit, you need to tackle your debt!

Three ways to fix or improve your credit score for free

1. Payment history – Always pay on time. Yes it really is that simple.

Make all of your payments on time and as required. No exceptions. This is the single most important piece of advice I can give you and the most effective tool at your disposal. Even if you can’t pay off a credit card, make sure that you make at least the full minimum payment before the due date. This goes for all of your debts and bills. As far as the credit bureaus are concerned, if you don’t make at least the minimum payment, you have missed a payment. Even if you were just $0.01 short or one day late, it will be recorded as a missed payment. You need to establish a realistic household budget that allows for debt payments. Create reminders to ensure you don’t miss any payments.

2. Keep well below the limit

Using up a lot of your credit is a danger sign. If you use on average 50 to 60 per cent of your credit on a regular basis, lenders see you as needing credit to survive. This puts you into a higher risk category, which brings down your credit score. To rebuild your credit score:

  • Bring your overall balances down. Make payments that actually reduce what you owe
  • Stay below 50 per cent of your limit on credit cards and other revolving credit. If you go over this, even if you never miss a payment, it could bring down your credit score. Use a budget to ensure that you spend within your means. Don’t charge anything on your credit cards that you can’t afford to pay off in three to six months.
  • Pay off what you owe. Find a debt repayment strategy that works for you.

3. Applying for new credit – Don’t do it!

Applying for credit that you need and can afford to repay is ok; shopping for credit is another. If you are having problems paying your existing bills, seeking out more credit isn’t a good idea. You may then be seen as a seeker of credit and go into a higher risk category, which again brings down your credit score.

When you’re in debt or trying to fix your credit rating, it might seem like applying for new credit is a good idea. It isn’t. Paying for debt with more debt is a sign that you are having significant trouble. More credit equals more debt. You need to focus on what needs to be fixed and not adding to the problem.

Identify why your credit rating is low

Depending on what’s bringing your credit score down, applying for a secured credit card and using it wisely might be a way to refresh your financial situation. If you aren’t familiar with a secured credit card, chat with your local bank or credit union. But if you’re trying to fix mistakes of missed or late payments and too much debt, making payments on existing debt is a far better idea.

Fixing your credit rating with a credit repair company

The bottom line on fixing your credit rating with a credit repair company is: Don’t do it. They may charge you thousands of dollars for what you can do for free. The money you would spend paying for the services of a credit repair company would be better spent paying down your debt. That is what fixes a credit rating. If you’re not able to handle your debt on your own, seek the assistance of a non-profit credit counselling agency and save your money.

Tim St Vincent is a retired CFP and is a Certified Educator in Personal Finance with the Credit Counselling Society, a non-profit organization. If you wish to contact the Society for further information, assistance or to attend a webinar, please call 1-888-527-8999 or visit or

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