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There are tons of Canadians who struggle with debt and bad credit every day. The same goes for the residents of Prince Edward Island. If you’re one of those residents and you’re having financial problems because of your bad credit, don’t worry, Loans Canada has some advice for you.
Bad credit can be a serious issue, check out how it affects your daily life.The Difference Between Bad Credit and Good Credit
Bad credit and good credit are two vastly different ends of the same stick. If you’ve ever used a credit product, such as a credit card, it means that you already have a credit report and a credit score. Both of these elements have the power to make or break your financial livelihood, so it’s important to keep them in good shape.
Your Credit Score:
- Is a three-digit number ranging from 300-900, representing your credit health. Lenders use it to judge your creditworthiness during the application process. A score of 650 or above is considered good. If your score dips below 620, you’ll be moving into the bad credit range. Take a look at this to see what your credit score range really means.
Your Credit Report:
- Is a detailed profile containing all your actions as a credit user over 7-10 years. Lenders may also examine it to look at your payment history and current debts, again as a way to see how good you’ll be at paying off the loan you’re given. Want to obtain a free yearly copy of your credit report? Read this to know how.
Bad Credit is Caused By:
- Late, short, and missed credit account payments
- Financial delinquencies (accounts in collection, consumer proposals, bankruptcies, etc.)
- Financial emergencies that use up your income and lead to worse debt
- Losing your job, also leading to severe debt and payment problems
To find out how bad credit affects your daily life, look here.
The Result of Good Credit:
- Better chances of approval for future credit products (mortgages, car loans, large personal loans, etc.)
- Lower interest rates, costing you less money over your payment term
- Since you’re saving more, you’ll have healthier finances and an easier time paying down any future debt
The Result of Bad Credit:
- Worse chances of approval for future credit products, because you look riskier in your lender’s eyes
- Some landlords and employers might even check your credit, see the same results and decide you’re not a trustworthy tenant or employee
- Higher interest rates, costing you more over your payment term (if you’re approved at all)
- Since you’re saving less money, the health of your credit and finances could slowly decrease because your debts are harder to pay responsibly
Did you know these 7 people can check your credit?
Improving Your Credit For Better Approval Results
If your bad credit has been stopping you from approval at your bank or other lending institutions, it’s probably time to start mending it by:
- Paying down your outstanding debt – First and foremost, the fastest way of fixing your bad credit is to make all your payments for all your credit products on time and in the fullest amounts possible. If paying your full balances isn’t feasible, at least making your minimum payments will save you from default penalties.
- Paying more than the minimum – While it’s true that making your minimum payments will save you from penalties, it’s also important to know that you’ll be charged interest for every unpaid dollar, which could only raise your debt level and damage your credit even more in the long run.
- Diversifying your credit accounts (if possible) – Another way to benefit your credit is by having a few different types of credit products (credit cards, loans, lines of credit, etc.) in your profile. Just make sure you can afford to pay all of them responsibly.
- Applying fewer times within a short period – While diversifying your credit products can be beneficial, applying for too many of them within a short time (6-12 months) can be harmful, especially if your credit is already bad. Each time a lender performs a “hard inquiry” to examine your credit, your credit score drops by a few points. If your poor credit is leading to denied applications, those lenders could see that in your report and decide that you’re too risky to invest in.
Reducing your credit utilization ratio – This ratio refers mainly to revolving credit products and can be calculated by dividing your current outstanding balance by your credit limit, then multiplying it by 100. It’s best not to use more than 35% of your available credit unless necessary, as your credit score will drop the closer you get to your limit. If this happens, you can also request a credit limit increase. Want to know more about revolving debt? Read this.
Applying for a credit rehabilitation savings program – You can apply for these types of programs through bad credit lenders. Essentially, you’ll be making payments toward your lender, who will then relay the activity to their credit bureau (Equifax or TransUnion). Those good payments show up in your credit report, raising your credit score. Your payments will then be refunded, minus a fee in interest for the cost of your lender’s services.
Check out how your credit score is calculated here.What if I Need a Money Right Now?
Since bad credit can take time to improve, there are other credit product options at your disposal, some of which Loans Canada can help you apply for, such as:
- Bad credit personal/installment loans – There are plenty of alternative lenders out there who work mainly with borrowers whose credit is in bad shape. However, they will likely charge a higher interest rate, so be sure to factor that in before you apply.
- Loans with no credit check – Not all lenders perform a credit inquiry when considering you for new credit. If your credit is bad, but your income is decent enough to afford your payments, you shouldn’t have a problem finding one of these specialty lenders.
- Secured collateral loans – If your credit and finances aren’t great, you can raise your creditworthiness by offering up your assets, such as your home, car, or other valuable property. This makes you less risky because the lender has the right to sell your asset if you default for too long. Again, keep that in mind before you apply.
- Loans using a cosigner – Another way of getting approved when your own financial strength isn’t enough is to get someone to co-sign your application. They will need to be in good standing in terms of their own credit and finances, but their help is definitely beneficial. However, both of you need to be aware that if you default, the responsibility falls to your cosigner and vice versa.
- Secured credit cards – In the event that you don’t qualify for a regular card, one of these can be a useful and effective credit improvement method. All you have to do is pay a security deposit upfront equal to your desired credit limit. You can spend some time making responsible payments, raise your credit score, and collect your deposit once your full balance is paid and you cancel the secured card in exchange for a regular one. What’s the difference between a secured credit card and a prepaid credit card? Find out here.
Frequently Asked Questions
What kind of bad credit loans are available in PEI?
Banks and major institutions are simply not willing to approve loans for those who have bad credit scores. Fortunately, there are many alternative lenders across Canada—and PEI included—that are willing to extend credit to those who are able to show a steady income, job security, and a moderate debt-to-income ratio. While payday loans can be an option for an alternative unsecured loan, personal loans represent a much better alternative. Secured loans also allow a bad credit borrower to leverage existing assets in order to get approved for a loan. If you own a car or have enough equity in a home, you can consider a vehicle title loan or a home equity line of credit.
Are personal loans better than payday loans?
Yes! Payday loans are exempt from higher interest rate restrictions whereas personal loans are not. Typically, the maximum allowable annual interest rate in Canada is 60%, but payday lenders are allowed to charge upwards of 500-600% because the repayment terms are shorter (usually 2 to 8 weeks). Personal loans offer better flexibility by allowing you to pay off your loan in smaller installments over more time. They also have significantly lower interest rates making them much more manageable.
How does bad credit affect my loan applications?
Having a bad credit score will affect the amount and rate of your loan, provided you are approved at all. Having bad credit can even affect other facets of your life, such as being able to rent a property, being hired by a potential employer, having to make security deposits on utilities, and higher insurance premiums.
Loans Canada, Your #1 Source
If you’ve got a bad credit situation, our Loans Canada team can help you fix it. Apply with us today to be connected with the best credit products available for the health of your credit and finances.
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