Credit solutions for Canadians are available to help address different financial needs, including building or repairing credit, and debt management. If any aspect of your credit health is in need of attention or improvement, you may want to consider looking into various credit solutions to see which option suits you best.
Key Points
- Many things can cause credit issues, including missed bill payments, loan default, and maxed-out credit cards.
- Credit issues can make it more difficult for you to get a loan, secure a low interest rate, get a job, and rent an apartment.
- Several credit solutions are available in Canada, including debt consolidation, consumer proposals, and bankruptcy.
Credit Solutions Available To Canadians
Credit issues are typically caused by the mismanagement of debt. Below is a list of credit solutions to help you solve your debt problems and thus improve your credit.
Credit Counselling
One of the best ways to get a handle on your finances and debts is by speaking to a credit counsellor. These debt relief specialists can provide you with advice about how to better manage your finances. They can also review your current financial situation and suggest appropriate courses of action or programs that can help you improve your situation.
Budgeting
Budgeting is one of the most simplistic credit solutions available, but it also can have a big impact on your finances. With a proper budget in place, you can pay down your debts and beef up your savings.
Budgeting involves itemizing your monthly income and your monthly expenses. The goal is to ensure that you have enough money left each month to cover all your bills. If there are any issues, your budget will help you pinpoint where issues are so you can fix them.
Learn more: Best Budgeting Apps In Canada
Credit Monitoring
Keeping tabs on your credit report and score is a good way of tracking and understanding your credit. Pulling your credit report can help you understand what type and amount of credit you’re dealing with. It can also help you identify what’s causing your bad credit and if there are any errors on your credit report that may be unfairly dragging your credit scores down.
Learn more: Credit Monitoring In Canada: Is It Worth It?
Debt Consolidation Loan
A debt consolidation involves taking out one big loan to pay off all your existing debts. The goal is to use a low-interest loan to consolidate all your high-interest debts. This will not only save you on interest but make it easier to track, since you’re left with just one loan payment rather than many.
Secured Credit Card
A secured credit card is a good credit solution as it almost guarantees approval and can help you build credit. Like a regular credit card, you can use a secured credit card to make purchases up to the credit limit. Your credit limit is determined by the security deposit you provide.
As you make payments, your provider will report them to one or both credit bureaus, which will help you build your payment history.
Best Secured Credit Cards
| Annual Fee | Purchase Interest Rates | Min. Deposit | |
| Neo Secured Credit | $0 | – 19.99% – 29.99% – QC: 19.99%-24.99% | $50 |
| Secured Tims® Mastercard | $0 | – 20.99% – 26.99% – QC: 20.99% – 24.99% | $50 |
Credit Solutions For More Severe Debt Issues
For more serious credit issues caused by excessive debt, you may need a more aggressive credit solution. Several are available, though they will likely have a negative impact on your credit score.
Debt Management Program (DMP)
A debt management program is a structured repayment plan designed to help consumers manage and reduce their debts, such as credit card balances and personal loans.
A credit counsellor will negotiate with your creditors on your behalf to come up with a plan for you to pay back your debts. You’ll then have up to 5 years to complete your payments. A DMP can lead to lower interest rates and an affordable payment plan.
Debt Settlement
Debt settlement is a process in which you negotiate with creditors to pay an amount that’s less than the amount you owe. Despite paying a lower amount than what’s owed, your debt will be considered repaid.
Consumer Proposal
A consumer proposal is a formal process administered by a Licensed Insolvency Trustee (LIT) that’s designed to help consumers who are unable to pay off their debts in full.
Your LIT will make an offer to your creditors to pay a portion of what you owe. You have up to 5 years to make your payments to your LIT, who distributes the funds to your creditors. Once the payments are made, you’re released from your debts.
Bankruptcy
Bankruptcy is a legal process that relieves you of your debts when you can no longer manage them. You may need to surrender some assets, though there are exemptions. Your LIT will use these assets to help repay your creditors.
When you file for bankruptcy, you enter a payment program, after which you’ll be discharged in 9 months (or 21 months if there is surplus income).
What Can Cause Credit Issues?
Credit issues can arise from a number of situations, including the following:
Late Or Missed Payments
One of the worst things for your credit health is missing bill payments. Your payment history is the most important factor to your credit score.
High Credit Utilization
Maxing out your credit card and spending close to the limit can lower your credit score. Your best bet is to keep your credit utilization ratio below 30%.
Loan Defaults
If you fail to make your loan payments, you run the risk of defaulting on your loan. This can severely damage your credit.
Too Many Credit Inquiries
Applying for many loans or credit accounts in a short period of time can lower your credit score. Try to reduce the number of new credit applications and space them out.
Public Records
Items like bankruptcies, consumer proposals, and judgments can stay on your credit report for years. During this time, your credit score will be negatively affected.
How Poor Credit Can Affect Your Life
Now that we know the potential causes of credit issues, the question becomes: how do they impact your life?
Difficulty Getting A Place To Rent
Landlords often perform credit checks as part of their tenant screening process. If you have poor credit and a history of missed payments, your landlord may reject your application.
Difficulty Getting A Job
Some employers may check your credit, especially if you’re applying for a job in the financial industry. With a low credit score, your employer may choose other candidates with better credit.
Higher Insurance Premiums
Insurance providers often use credit scores when determining your insurance premiums. The lower your credit, the more risky you’ll seem, which may lead to higher insurance costs.
Difficulty Qualifying For Credit Products
When you apply for a credit product, your ability to qualify will be lower than someone with good credit, particularly with a traditional financial institution.
Higher Interest Rates
Borrowing with bad credit is a lot more expensive than someone with good credit. Lenders will generally charge higher interest rates to those with bad or poor credit to offset their risk.
Bottom Line
If you’re not careful with your finances, you may experience credit issues, which can take a while to fix. Fortunately, there are several credit solutions available that can help you repair your credit score.
