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July 23, 2021
A good credit rating is an integral part of your financial health. But how do you ensure you have good credit?
A good credit rating is an integral part of your financial health. But how do you ensure you have good credit? There are many misconceptions about how a credit score is calculated. Are you sure you know the basics?
Listen to this radio show with BDO Licensed Insolvency Trustee, Nancy Snedden, and Credit Canada’s Bruce Sellery.
To learn all about making sense of your credit and how to improve your credit score, check out our new credit repair page.
BDO Debt Solutions · Your Money With Nancy Snedden July 3 Credit Rebuilding With Bruce Sellery Full
Nancy Snedden:
Hello everyone. And welcome to Your Money with Nancy Snedden. I am Nancy Snedden. Thanks so much for joining us today. Credit is the focus of today’s show. When it comes to credit, we know there are lots of questions and sometimes confusion around what it means and how it works. There’s your credit score, your credit rating, and of course, your credit report. So, what are the benefits of positive credit and the downside of poor credit? And what we are really going to focus on is how you rebuild your credit once it is damaged.
So joining me for this conversation is Bruce Sellery. He’s the CEO of Credit Canada. Bruce is a nationally recognized leader on personal finance and financial literacy. His professional background includes business journalist, anchor, keynote speaker, podcaster and author of two Globe & Mail bestselling personal finance books, Moolala: Why Smart People Do Dumb Things with Their Money (and What You Can Do About It) and Moolala Guide to Rockin’ Your RRSP: Start Rockin’ in Five Easy Steps. Bruce, so great to have you back on the show.
Bruce Sellery:
Thank you so much for the invitation. Just by the very nature of us having this conversation, I feel like I’m back in Gros Morne. So you have done a great service to me, reflecting on the most extraordinary holiday we took with my then 84-year-old mom and her five children. And the best part is no one killed anyone! We all returned alive. It was an amazing vacation. We had extraordinary weather for part of it. And the part that we didn’t have extraordinary sun, we had extraordinary rain, which was exactly how it should be. You should have both in Gros Morne.
Nancy Snedden:
I’m glad that you and your family got to visit. And the nice thing is now we see things reopening after so many different shutdowns, and you’ll be able to travel back to Newfoundland again and take in some more of the province, so that would be great. Bruce, you’ve been on the show before really talking about personal finance and financial literacy topics based on the books that you’ve written. But you’ve taken on a new role as CEO of Credit Canada and that’s fairly recent. Congratulations on that role. What can you tell us about why you chose to go in that direction? What attracted you to Credit Canada?
Bruce Sellery:
I have been working in the area of financial literacy for much of my career. And everything that I had been doing with the books and the reality TV shows and the media appearances is all about inspiring people to get a better handle on their money so they can live the life they want. And so when the job became open at Credit Canada, I thought, wait a second, I don’t have to do this on my own anymore. I could do it with an organization that has 54 years of experience working with Canadians one-on-one. So it has been such a great fit for me.
The people are awesome, the clients are vulnerable and authentic, and really endeavoring to put a chapter of bad debt behind them. And so it’s been a great opportunity for me to stretch myself a lot, to bring a different perspective to the agency and to work with really, really passionate and committed counsellors who are out to make a difference. Our mission is to help people get out of debt so they can get back to life. And so I love that you invited me on this show to have this conversation because it is 1000% what we do at Credit Canada, but also what all of the non-profit credit counselling agencies do. And you probably know Al Antle, there’s a great history in Newfoundland and Labrador and really across this country of nonprofit credit counselors who are out trying to make a difference.
Nancy Snedden:
Absolutely. And Al’s been on the show several times as well. He and I have had a great relationship for very many years, helping clients with their debt problems, depending on what it is is the best solution for them. And then of course, on the rebuild side as well. They do a lot of really great work here, for sure. Credit Counseling Newfoundland Labrador. So let’s start talking about credit scores. So from a very basic perspective, what is your credit score and how is it determined?
Bruce Sellery:
It is a number. It is a number, and it is a number that all lenders have access to. So one of the things we have to address with our clients is, “Oh, I don’t want you to know my credit score. I don’t want people to know this score.” Everybody knows your credit score. Maybe not your neighbor, but people can pull it readily and it’s quite easy for them to have access to. And it is really a summary of your history in dealing with debt. And I’ll talk about the specifics of how it’s compiled, but here’s the basic thing. High score, high likelihood that you’re going to repay in full and on time. Lower score, in the view of the lender, lower likelihood that you’re going to repay in full and on time. So lenders are playing a risk game, right? They’ve got a certain amount of money to lend and they look out there and say, okay, who am I going to make my bet on?
And if someone’s got a really high score, I’m going to charge them a lower rate of interest. If someone has a lower score, I’m going to maybe not grant them credit at all. But if I do, I’m going to charge them more in interest because I’m going to be taking on more risk. So that’s how the lender sees it. For you and I, and for every Canadian, there are three main benefits to having a higher score. First is it’s a lower cost to borrow, right? You can go to a bank and get a boring, old installment loan.
You can get a line of credit. And if you have a low score, you might have to go to a higher cost, alternative lender and heaven forbid, a payday loan company. The second is an ability to borrow, right? So if you have a high score, you can get a bigger mortgage to buy a house that you want or whatever else that means. And then the third thing, which I think is people are less aware of is this can affect your ability to get an apartment or get a job. Because a landlord can look at that score and say, hmm, I don’t know if I want to rent my apartment to that person. They’ve got a weak score, maybe they’re not going to pay the rent. So there are a lot of benefits to having a higher score.
Nancy Snedden:
Yeah. And definitely, it’s important that you do have some credit to build that score, which to your point, so many people look at it, so a lot of people think that they would have a high credit score because they haven’t really had any credit cards. They’ve never been late on payments or been overextended on debt and that kind of thing. But I know I’ve had friends and family say to me, “I’ve never had a trouble with credit, but I can’t get approved for a car loan.” And, you know, I’ll start asking some probing questions about their credit history. “Well, I’ve never really had a credit card.” And so what you find is that they actually don’t have a credit history. And so therefore they don’t have a credit score, which is going to make it just as hard as someone who has a poor credit score. So if we look at, what creditors are looking for with debtors’ scores, what would they consider to be a positive score or a poor score?
Bruce Sellery:
So you want to be higher than the mid seven hundreds. There’s a bunch of break points and it’s not a science. The different bureaus can kind of do different things. But here’s the rule of thumb, 760 plus, excellent. 725 to 759, very good. Anything below 660 and it’s fair, you’re going to have some challenges here and there. Now because I’m such a type A perfectionist, I’d pull my score and I’m like, why am I not 900? Why am I anything less?
It doesn’t matter. First of all, because as long as you’re higher than 800, it’s as good as it gets. But it is a very complex algorithm. And we’ll talk about what drives the credit score. But when you look at it, you want to say, if you’re 760 and above, you’re in great shape. And there might be a few things that you can do to improve it, but it’s not going to affect your ability to borrow or the rate that you pay if you’re in that highest range.
Nancy Snedden:
Great. And as you mentioned, there are many different things that make it up. And I think that’s a misconception people have too, because I’ll have clients actually say to me, my credit score is not as high as I thought it would be, but I’ve never missed a payment. I’ve always made my minimum payments. But there are other things that go into making up your credit score. So what can you tell people about that?
Bruce Sellery:
Yeah. So there are five things. But the first and most important, 35% of the credit score is based on your payment history. So, did you make your payment on time? Did you follow through on your agreement with a lender? That is really, really, really important. It’s the number one thing. What people are less aware of is the second most important thing, which is called credit utilization. So this is worth almost as much, not quite as much, but almost as much. And this is how much credit you are using. So let’s say you’ve got a couple of credit cards. Maybe you’ve got a small line of credit, maybe it’s secured against your house. And you’ve got a total of $10,000 available to you. $10,000 available. You don’t want to have more than $3,000 outstanding at any given time.
So that’s what’s called a utilization of 30%. You don’t want to go about that. And the reason is, think about it from the lender’s standpoint is they want to know that you can withstand adversity. So if you’ve got $10,000 available to you and you’re already using nine, if you lose your job or you have to have an emergency dental procedure or your pet needs $2,000 in care, you’re going to be in trouble. They want to know that you’ve got some wiggle room there. The third one, and I think this is where there’s some misconceptions too Nancy, is credit history. It’s not worth as much of your score, but this is the length of time that you have been using a particular type of credit for.
So for example, a credit card. If you got a credit card when you were just a young pup in your early twenties, keep that credit card account active. Use it every once in a while, because it’s going to be helpful to your score to demonstrate that you’ve got like 20 or 30 years of history with that particular lender. And then the other two, which we can talk about in more detail but I’ll just highlight them, is diversity of credit. So it’s helpful to have a store card, a bank card, maybe a car loan, maybe a line of credit, some different things. And then the last one is credit inquiries. You don’t want to be applying for new credit left, right and center. As compelling as those incentives may be, it makes the lenders a little concerned that you’re in a tough situation if all of a sudden you’re like, I’m applying for everything.
Nancy Snedden:
You know Bruce, that’s a really great explanation. Something else that people often wonder about is what’s the difference in credit score versus credit rating? So we’re going to get into that when we come back. Please stay with us.
Announcer:
Your Money with Nancy Snedden of BDO will be right back.
Nancy Snedden:
Welcome back. You’re listening to Your Money here on VOCM. I’m your host, Nancy Snedden, licensed insolvency trustee with BDO Canada here in Newfoundland and Labrador. My guest today is Bruce Sellery. He’s the CEO of Credit Canada Debt Solutions. You’ll also recognize Bruce’s name from being on the show before. He’s the best-selling author of two books, Moolala: Why Smart People Do Dumb Things with Their Money (and What You Can Do About It), and Moolala Guide to Rockin’ Your RRSP: Start Rockin’ In Five Easy Steps.
Bruce, we were talking in the first segment about your credit score. A lot of times, people wonder what’s the difference in my credit score and my credit rating, and how are each of those used. What can you tell our listeners about credit ratings and the difference in their score?
Bruce Sellery:
The analogy I’d use is that the credit score is like a grade point average, a summary of your academic performance. You may have a mark in history. You may have a mark in math. You may have a mark in phys ed. It all builds up to a GPA, grade point average.
With a credit score, it’s the summary of many different things. One of those things is the credit rating on specific debt. A credit score is a number. A credit rating is a letter. What? It’s true.
An R letter means revolving. An R1 means you paid as agreed. You are amazing. Hurray for you. You paid as agreed within 30 days of billing. If you are late, that rating drops to an R2. That can get even worse. It can be an R4, depending on time. It can get all the way down to an R9, which means it’s a bad debt in collections. That’s a real red flag. It’s going to be a real hit on your credit score.
If I were to have to choose just one thing for our listeners to take away, I’d say focus on the score, because it’s a summary of all those different things. But the rating is where you can get right into it and say, “Oh, geez. Look at that. I’ve got an R4 on this particular credit card. I need to make sure that I improve my behavior there.”
R is not the only letter. There’s also an I, which is for installment loans, like a car loan, for example.
I think it’s really helpful to know this stuff, especially if your score is low … in the six hundreds. You need to figure it out. What’s going on? How do I address a score that is not going to give me the cost of borrowing that I want, or the access to credit that I want?
Nancy Snedden:
Yeah. That’s a really good synopsis. To your point, it can be different on different types of debt. You may have an R1 on one, an R4 on another, so you need to make sure that you’re being consistent, because it will all have an impact, for sure.
People find out this information, of course, by looking at their credit report. What else is included in your credit report?
Bruce Sellery:
Your credit report has details about the accounts that you have, whether you’ve made payments on time. You can find out who requested your credit report. Mostly, what’s relevant on that front is, as I said before, credit inquiries can be a hit, but there’s a difference between what’s called a hard inquiry and a soft inquiry.
A hard inquiry is when you go into a department store and you say, “I want a department store credit card,” and they say, “Okay. I’m just going to check your credit file and see, and then I’m going to give you a yes or a no.” Or when you go to get a mortgage, there’s a hard inquiry.
If you call us, for example, we do what’s called a soft inquiry, a soft pull on your credit score. It doesn’t affect your score. It just allows us to see it.
When you look at it yourself, either through the bureaus directly, TransUnion and Equifax, or there’s a bunch of organizations that allow you to look at your credit score, that’s what’s called a soft inquiry or a soft pull. It doesn’t affect your score.
So you get your credit report, and you want to just eyeball it and see if there’s anything wonky there. Like when I went through mine, there was a record of a credit card that I’d had since university, that I don’t think I’ve had in my wallet for 20 years, but it was still on that file. Now, it didn’t affect me in a negative way, but there could be something on there that could be negative, that you’re going to then need to pick up the phone and call the credit bureaus and say, “You realize that’s an error, right?”
Or there could be something fraudulent, like someone opened a credit card in your name that you never knew about, and it’s fallen into collections, and you didn’t even know it existed, for example. Not that that’s super common, but it’s important to keep an eye on things and know what’s going on.
Nancy Snedden:
You’re right. It is really important, because you want to see where you stand. But again, also understand that there could be people using or applying for credit in your name that you weren’t aware of. So you always want to make sure that there’s no mistakes there, if there’s something you paid off that’s still showing there as active, or those type of things.
Nancy Snedden:
How often should people be looking at that?
Bruce Sellery:
Well, I would say … I haven’t looked at my credit report in a year, and I don’t worry about it, because I have credit score monitoring from one of the financial technology companies. There’s a bunch of them that offer this, Credit Karma, Borrowell.
In the case of Borrowell, how it works is you sign up for a free credit score. They’re actually paying for that credit score from Equifax, but the reason they do that is it’s a big marketing thing for them. So they get my email address, and then they send me offers. I ignore all those offers, but a certain percentage of the population doesn’t ignore all those offers. So they make money because they recommend a credit card, or a car loan, or some other product that enables them to pay for that score.
I get regular emails from Borrowell, and it says, “Your score has gone up,” “Your score has gone down,” whatever. But in my case, it’s within a very narrow range, because Nancy, I’m perfect. I am perfect. I’m kidding. I’m not perfect.
Here’s a brief sidebar, though, on the prevalence of fraud that just should give you pause. I was going through … I have a bunch of different credit cards for different reasons, a corporate card, and a family card and a personal card. And I have Spotify, the music service.
So I’m looking at my credit card. Yep. There’s the bill for Spotify. Then I look on the family credit card, and there’s a bill for Spotify. I’m thinking, “Do you accidentally have two Spotify accounts? How is that possible? I can only listen to one Spotify at a time.”
So I get in touch with Spotify, and wouldn’t you know it, someone had been using my credit card for their Spotify. They say, “Well, it’s connected to this email address,” which is, of course, not an email address that I know. It was fraudulent.
Get this. You ready? This is the truth serum. I’m going to tell you something so embarrassing I can’t even stand it. I had been paying for a second Spotify account, that was accessed by way of fraud, for a year before I noticed it.
Now, what is my advice to people? Look at your credit card statement every single month, and see if there’s anything that’s wonky. But because the Spotify charge was on two separate credit cards, I didn’t notice it, because I know I have Spotify. I pay for Spotify. It just didn’t occur to me, because I wasn’t looking at the credit card statements at the exact same time.
All that to say, you really have to go through your credit card statements, and it’s worth it to go through that credit report every once in a while, because you may find some things.
Spotify reversed the charges. It’s all fine. But I felt like a bit of a dope having not noticed that for a year.
Nancy Snedden:
Yeah. You know what, Bruce? It can happen. It just goes to show how easily something like that can happen. I have heard in some of the shows that I’ve done around Fraud Awareness Month, with the different people involved in that profession, that that’s oftentimes how frauds are successful is that they put certain things on people’s cards that are small amounts and less likely to get noticed.
For example, if someone were to go to an electronics store and buy a whole new home theater, you’re going to notice that charge on your credit card. But it’s a lot harder for people to notice, unless they’re really scrutinizing their bill, a small charge of $5 or $8 or $10 that’s going through each month. Right? So it’s super important that you keep on top of that stuff.
Bruce Sellery:
Yes.
Nancy Snedden:
Bruce, we know that there’s so many Canadians that are struggling financially. They’re living paycheck to paycheck, really facing affordability and debt challenges. Some of this is out of their control. With the pandemic, there’s been illness, there’s been job loss. We know for insolvency and financial difficulty, relationship breakdown has always been a very significant factor, and continues to be. It can all negatively impact your finances and your credit score.
So let’s talk about how your credit score can be negatively impacted, and how quickly someone can go from a positive credit score to a poor score.
Bruce Sellery:
Well, you can imagine how quickly it happens when we talk about those five drivers. Payment history. You lose your job, you miss a payment or two, because you don’t have the money. Or you have a physical health issue or a mental health issue, and you’re just not on top of your bills. The money’s sitting in your bank account, and you just didn’t get it together to pay the bill.
Credit utilization. Think about that. I use that $10,000 example. You don’t want to exceed $3,000 in debt outstanding. Your brakes go on your car. All of a sudden, you need to put a $2,000 bill, and it’s the same time that you need a root canal. So your utilization goes wonky. Then you make a bunch of credit inquiries for some particular reason, and you can see how, pretty quickly, that score can decline.
I think one of the things you pointed to in the lead up to your question is there are so many circumstances that get thrown at people just by way of being a human being on this planet. It is so important for people to both be in action to deal with these credit issues, and not be inhibited or overcome by the shame or guilt they might feel because they’ve had a real hit to their credit score, because they’re late on their payments.
That shame and that guilt, first of all, is not helpful. Second of all, it’s not accurate. No one goes out there and tries to not pay their bills. People are faced with a ton of circumstances.
I’m sure this is true in your office. At Credit Canada, we take every call, and really endeavor to have client’s experience be that their circumstances and their feelings are valid, and that we can help them. Because so often, people don’t want to pick up the phone, because it’s so stressful and they feel so bad about it, it’s causing such angst internally or within their family, when they could make a phone call, and start to pull a plan together that would get them out of it.
Nancy Snedden:
Absolutely. We’re going to talk a little bit about what those options are, how they impact your credit report, and then how you rebuild your credit score after that, when we come back. Please stay with us.
Announcer:
Your Money with Nancy Snedden of BDO will be right back.
Nancy Snedden:
Welcome back. You’re listening to Your Money with BDO. I’m your host, Nancy Snedden, licensed insolvency trustee with BDO Canada here in Newfoundland, Labrador. I’m talking with Bruce Sellery today. He’s the CEO of Credit Canada Debt Solutions. Bruce is also a nationally-recognized leader in personal finance and financial literacy. He’s the author of two Globe and Mail bestselling personal finance books. Moolala: Why Smart People Do Dumb Things With Their Money (and What You Can Do About It). And Moolala: Guide to Rockin’ Your RRSP, Start Rockin’ In Five Easy Steps.
Bruce, we’ve been talking about credit scores and the importance of looking at your credit report, and oftentimes people wait longer than they should given the financial stress that they’re under and the anxiety, the issues that it’s causing in all the different aspects of their life. Which we know financial stress does. And they wait longer than they should, because they’re concerned about the impact of their bad credit rating with their credit score.
Nancy Snedden:
As we started to talk about at the end of the last segment, often times the best way to rebuild your credit score is to look at a plan to deal with your debt. Whether it’s a debt repayment program through a credit counseling agency or consumer proposal or bankruptcy with the licensing solvency trustee. Because you’re cleaning the slate, and from there you start to rebuild. And you’re often doing it in a manner that’s going to be a lot more cash effective for your family because you’re not worrying about the debt growing or worrying about making interest payments and all that kind of thing. What can you tell our listeners about exactly that. What impact is it going to be on their credit report? And then we’ll talk about how to rebuild from there.
Bruce Sellery:
Yeah. What I would say is, three of the options available to people will have an impact on their credit score. The first, a debt consolidation program through nonprofit credit counselor. It does impact your score coming out. A consumer proposal and a bankruptcy, both will affect your score. We don’t need to get into the details of that. They will. And so what? It doesn’t make you a bad person. Sometimes those options are really what are the best path. I think people need to, as I said before, you need to park the guilt and the shame aside and have a conversation with an expert to say, “Here are the pros and cons to each.”
Because there are a couple other things that clients can get through a nonprofit credit counselor, and that is they could get some basic budgeting help. Because for some people it’s like, “Oh my gosh. Okay. If I just budget better, then I could improve my situation.” Or, some credit-building advice, counseling, which we do at our place as well. But for some people, no matter how much work do you do on budgeting or work on credit rebuilding, you need that fresh start. You need a debt consolidation program that’s going to put it all into one monthly payment at a lower interest rate. Or, in the case of a consumer proposal, that you’re not paying back your debts in full. You’re not paying 100 cents on the dollar, you’re paying something less than that. Maybe it’s 30 cents on the dollar, whatever it is. And that really is a path that you need to work through with a professional. In my case, an accredited credit counselor. In your case with a licensed insolvency trustee.
Bruce Sellery:
We think about it as a continuum of services. And when the phone rings, we are ready to answer the questions and help guide clients through to a solution that is going to be in their interests and sustainable. Because there’s no point in me giving someone just budgeting coaching, when really what they need is a consumer proposal. So, I think it’s really important to assess all of those options and you can do it very quickly. You answer the phone all the time. We answer the phone all the time. And there’s great perspective at the other end of that phone line.
Nancy Snedden:
Absolutely. I’ll often have clients who are worried about their credit scores while going through the process and explaining the impact. And I say to them, “Let’s look at it, let’s put it in perspective. If you keep doing what you’re doing and making all your minimum payments for the next five years, you’re going to owe the same amount five years from now. Or possibly more, if you continue to use your credit, because your minimum payment is really not giving you a reduction in your debt.”
With a debt retirement program where you’re paying off your debt over 54 months, at least you know at the end of the 54 months, you’re debt free and you can start to rebuild when you are going through the program. Or to your point with a consumer proposal, your monthly payment is going to be so many cents on the dollar. 60 months or sooner, depending on the terms of your proposal, you’re going to be debt free and you’re going to be rebuilding your credit score. So there’s lots of reasons why it’s the best choice for people to actually rebuild their credit. So let’s talk about that now Bruce. What are some of the initial steps that people can take when it comes to repairing their credit score?
Bruce Sellery:
Well, I keep going back to these five things of how their score is determined. The first thing is, pay on time. Pay on time. You know what the credit card agreement is. You need to pay your minimum on the date and, it’s going to be much better for you if you can pay that off in full, over time. Here’s my hack on increasing the probability that you can do that. Assuming that you’re in reasonably good shape on a cashflow standpoint. You’ve got money coming in and you’ve got money going out. What I recommend people do, is set an automatic withdrawal for either the minimum payment, or if you can pay off that credit card in full, that it just comes out of your account. This works for people who have job jobs with a regular salary.
If you’re in the gig economy or you’ve got seasonal work, it doesn’t work so well because you just don’t know what your income is going to be. But if you do set up automatically, and when you’re doing that, I also recommend people set up overdraft protection on their bank account. Because you do not want to go NSF on your bank account. So if you have overdraft protection, that’s going to protect you in that regard. And then you don’t have to worry about the organizational challenge that people have sometimes. It’s like, “Oh right. The bill came in the mail. I filed it somewhere. Is it under the phone book? Is it in the living room?” It’s just all automated. I think that’s one thing that you can think about. A lot of the other stuff is really about living within your means. That’s so important to keep your accounts up to date and live within your means.
Another idea is to use a secured credit card. For a lot of people in a really tough situation, a traditional credit card either isn’t available to them or is quite problematic because it’s got a limit that’s too high or whatever. A secured credit card, basically what you do is you put an amount down that isn’t available to you, but that covers the risk on the part of the card issuer. So say it’s $1,000, it means that if you don’t pay your credit card, they’ve already got your money. They’ll just close that card and it’s done. And that payment history is reported to the credit bureaus, so you get credit for that. They’re like, “Hey, look at you. You paid your credit card. Awesome. I’m calling Equifax and TransUnion and telling them how great you are. Hooray .I’m sure that’s how it goes. Right? You can imagine if I were calling the credit bureau. “Hooray, good for you. Gold star. Here’s a sticker.” So, you can start to see improvements over the course of time.
The other thing I’d mentioned is, you have to kind of be two-headed about your credit score. On the one hand, it really matters. It matters in your ability to get credit and the amount that you pay for that credit, but it’s also just a number. And you don’t want to get so obsessed with the number that you’re paralyzed and not doing the things that you need to do, like pick up the phone and call you or me to come up with a better plan.
Nancy Snedden:
Yeah, no, absolutely. It’s something that can be rebuilt. To your point, we just went through a bunch of things. And that’s what I say to people too. I’m Like, “You can get secure credit cards. Use it, pay it, use it, pay it. You’re not carrying a balance. You’re not worried about the interest that’s on that particular card. But you’re rebuilding your credit score as you’re going through the debt retirement program or the consumer proposal.” Most often, people do keep their vehicles, for example. So they continue to pay their vehicle loans, which get reported to their credit score, which will help in that rebuilding process too. So, you really need to think about what’s going to be the best thing to get you back on your feet, and worry less about the immediate impact, because it can always be rebuilt.
But, there’s some companies out there that often say that they can help you rebuild your credit quickly. It’s not…It takes time. It takes patience. So what can you tell our listeners about that and what should they be aware of?
Bruce Sellery:
It takes time and it takes patience. And I look at some of the ads, I’m sure you do too, and they’re so compelling. They’re particularly compelling on social media. And to a trained eye, like you and I, it must be similar to a dietician looking at the, “Eat onions. Lose 20 pounds.” And the dietician knows that there is no science behind eating onions and losing 20 pounds. The science behind losing weight is not that complex. You need to exercise more. you need to eat less of certain things. Probably less chocolate cake. I’m oversimplifying it, certainly there’s medical things that have it be harder for some people than others. But onions is not it. When I see the ads for these magicians who make these promises about credit rebuilding, it has me in despair because there’s people who are credible and operate with high integrity, who can provide these services without paying a significant cost.
So there is a category of the markets, they might call themselves debt consultants, and they charge, can charge, really, really high fees in order to help someone rebuild their credit… Typically how it works, is they charge a high fee and then they sell your file too often to someone who’s then going to actually do a consumer proposal or a bankruptcy filing. But you and I both know that that cost is not required. You can pick up the phone and call Nancy at any time. You don’t have to pay a fee to get a consultant to introduce you to BDO or to Nancy. You can just pick up the phone and call her. Or you can call a nonprofit credit counselor and we will be able to help you on a debt consolidation program. So, it’s the debt consultant category. They’re not accredited. They’re not regulated like the licensed insolvency trustees are, and that’s the problem area of the market.
If I could snap my fingers together and say, “Ooh, what’s the part that we really don’t want to energize.” It’s people who are going after that buck. And sometimes it’s a fee in absolute dollars, like $1,500 bucks or something. Sometimes it’s a percentage of the debt that they are eliminating through a bankruptcy filing or a consumer proposal. So they end up paying a significant amount of money that they actually don’t have to pay. It’s akin to forcing the people who are in the most need of dining at a five star, Michelin-rated restaurant, instead of taking them to the grocery store and helping them buy a balanced set of ingredients to make a healthy meal. They don’t need to be spending all that money on a debt consultant.
Nancy Snedden:
Yeah, that’s a really great way to describe it. To your point, oftentimes people think, “Oh, I don’t want to impact my credit score by going to a debt retirement program or a consumer proposal, this discount company is telling me they’ll help me rebuild my credit.” But what they don’t know is, until they’ve already gotten in and signed the contract and paid the fee, is that the way they’re going to help them rebuild is by referring them to a licensed insolvency trustee to do a consumer proposal. So to your point, you can reach out to the trustee, reach out to credit counseling agencies, accredited nonprofit credit counseling agencies, to get the advice without paying that fee first.
Bruce Sellery:
Yeah.
Nancy Snedden:
More advice on rebuilding your credit is straight ahead. We’ll be right back.
Announcer:
Your Money with Nancy Snedden of BDO will be right back.
Speaker 1:
This is Your Money with Nancy Snedden on the VOCM radio network.
Nancy Snedden:
Welcome back. You’re listening to Your Money here on VOCM. I’m your host, Nancy Snedden, Licensed Insolvency Trustee with BDO Canada here in Newfoundland, Labrador.
I’m joined today by Bruce Sellery. He’s the CEO of Credit Canada Debt Solutions. He’s also a nationally recognized leader in personal finance and financial literacy.
He’s the author of two Globe and Mail best seller personal finance books, Moolala: Why Smart people Do Dumb Things with Their Money (and What They can Do About It). And Moolala’s Guide to Rockin’ your RRSP: Start Rockin’ in Five Easy Steps.
So, Bruce, before the break, you had some great advice for listeners on how they can rebuild their credit once it’s been negatively impacted and the sort of pitfalls to watch out for in deciding which option you’re going to go with, to try to rebuild your credit and making sure that you’re going to an accredited or licensed individual to get the right service for you and not paying additional fees that you don’t need to pay.
So, I want to talk a little bit more now on rebuilding your credit after you’ve been through an insolvency or a debt retirement program. So, there are lots of steps that we talked about earlier that will help, but what do listeners need to understand about how a consumer proposal or bankruptcy is going to impact their credit and how they move forward from these filings.
Bruce Sellery:
Yeah, I mean, I think both a debt consolidation and a consumer proposal do impact your credit and you know better the details on consumer proposal, but I think it would be fair to say that once it wraps up, it could still be a couple of years.
With a debt consolidation program, it’s an additional couple of years after that. I wouldn’t let that dissuade you, because if it’s the right choice, it’s the right choice. What you will be working on then, is demonstrating to lenders that you’ve learned a lesson here and that you are going to be rigorous about making your payments on time and in full.
And that’s on everything across the board. It’s your rent. It’s your utility. It’s the cell phone bills. It’s all that kind of thing. So, rebuilding your credit… I mean, I wish there was a magic approach, but it’s behaving in a way that proves to lenders that you are able to do this responsibly.
So, it’s not avoiding credit entirely. Earlier, we were talking about the misconception that people think they’ve got a great credit score if they don’t use credit. And it’s kind of analogous to someone saying, “Well, I’ve never burned down my kitchen.” And you say, “Oh, that’s great. How often do you cook?” “Oh, I never cook. I order in all the time.” Well, then, that’s not relevant. If you’ve never burned down your kitchen and you don’t cook, that’s not a relevant thing.
So, you need to be able to prove that you know how to use the tool. And I think this informs my view of the world and as a parent, we need to be teaching our young people and our 20 year olds and sometimes our 50 year old, how to use the tool. And the tool is called credit.
In today’s day and age, we are more and more so, a cashless society. And sure, some of that can be a debit card and you’re not going to run into a credit problem if you only use your debit card, but you’re also not going to be building your credit score if you only use a debit card.
So, I think the responsible use of a credit card or a line of credit, a mortgage, car loan, whatever it is, that is a life skill, that’s really important to learn. And if you’ve had a misstep then to learn, maybe later in life, will be important too.
Nancy Snedden:
And all these things are steps that you’ll take to improve your credit score, including of course, following debt retirement program within an institution like yourself or consumer proposal with a licensed insolvency trustee.
And oftentimes, people are worried by going through those actions that they won’t be able to get credit again, which, no, is not the case. And that’s why we’re sending the message that you can rebuild your credit and you will be able to access credit in the future.
It’s really about getting that fresh start and getting a clean slate so that you can move forward in the right path. And BDO, we’re a licensed insolvency trustee and whether you file a consumer proposal or a bankruptcy, there are two counseling sessions that you do have to complete.
One of them is on budgeting. One of them is on how to rebuild your credit. What I often find, and I’m sure you would find in the geographies that you’re selling to Bruce, that people want additional support in that area.
Maybe they want some additional budgeting help, or they want some additional help in rebuilding credit. So, I’ll often refer clients to Credit Counseling of Newfoundland and Labrador to get some of that extra help. So, what can you tell people about the benefits of these credit counseling sessions?
Bruce Sellery:
Yeah, I think they are… So, the ones that are the actual sessions with counselors, look at your particular situation and help you think through your budget, because what can be really difficult is seeing where systemically you’re in a situation that is not tenable. It’s untenable over time.
So for example, you’re in a living situation that you can’t support, based on your income. I was talking to someone last week who had what I would call a really well-paying job, but he got into trouble because he got a new apartment that was costing $2,100 a month. That is a lot of money.
And what he said as his explanation is, “There was nothing cheaper than that.” And I know there are lots of people who are in sub-optimal living conditions compared to that, than this brand new apartment in a condo. That people live in situations where they have roommates or they live in situations where they’re not as close to their workplace as they’d like to be.
And life is a series of trade-offs. So, what was the bitter pill for him to swallow was me saying, “Listen, you actually can’t afford that. So, I know you’ve got this great income, but based on the debt that you carry… And in his case there was a tax liability, plus some credit card debt and the absence of any savings… The person was in their mid forties. The absence of any savings whatsoever… You can’t afford that apartment.” Which is not a fun conversation, but those are the kinds of things that you need to have that conversation with someone who can provide you that third perspective or third-party perspective.
Because it’s not like he’s needing to file a debt consolidation program or a consumer proposal. I think he’s just got a budget that is unsustainable, based on the goals that he has for his life. Namely, he wants to be able to retire one day and he doesn’t have a pension.
Nancy Snedden:
I mean, you do need to be able to save for those types of things. So, living paycheck to paycheck, paying high interest credit card debt or living to your point in an apartment that you really can’t afford on your own, is not allowing you to get there.
So, these types credit counseling sessions really help you focus on your budget and what changes you can make to be able to save, to be able to plan for the future. Whether it’s planning for a down payment on a home or planning for your retirement. That’s some really great advice there.
So, Bruce, we’ve got some time now for some final thoughts. So, if you can leave our listeners with a final thought today, what would it be?
Bruce Sellery:
Your job as a human being on this planet is to have a great, great life and how you define great life is different from the person sitting next to you. It may be different from your spouse. It may be different from your kids, your parents. Your job is to have a great life.
And one of the tools to having a great life is making effective use of money for your physical surroundings, for your ability to feed your family, clothe your family. For your ability to contribute to your community. There’s many, many different reasons why you want to have a certain level of competence in managing your money.
So, listen, I would say if you’re in a really tough situation, pick up the phone and call BDO, call a non-profit credit counselor. You can find them online. If your situation is less acute, if things are less dire, but you want to learn more, go to Credit Canada’s website, or just Google non-profit credit counseling and take a webinar with us. Download our free debt assessment.
Like there’s just so many different tools out there. Pick up a book at the local library and learn some more about this, especially if you’re not that interested.
Because it’s very easy Nancy, for you and I to talk to people who love this stuff. I worked at BNN Bloomberg for a long time, and people were addicted to financial television and so exciting.
My role in today’s context is to reach out to people for whom this isn’t interesting. It’s not exciting. They don’t want to learn more. But I want them to know the basics, because it is going to increase their ability to live a great life.
Nancy Snedden:
Absolutely. And there’s so many resources out there to your point. You guys have a great website with a lot of great information on budgeting and how to rebuild your credit and many other financial literacy type things.
FCAC, right? Financial Consumer Agency of Canada has a great website that has a bunch of information on it, as well. And read through it, educate yourself, but also it helps you understand the things that maybe you’re not sure of. And maybe it equips you with the information you want to ask people about, ask professionals about, to really understand what it is you’re reading.
So, it’s been really great having you on the show today, Bruce. If people did want to reach out, they wanted to have a look at your website or contact Credit Canada Debt Solution, what’s the best way for them to do that?
Bruce Sellery:
Creditcanada.com. That is the simplest way. Creditcanada.com and you go find it on our website. Our phone number is there, as well. It is 800-267-2272. 800-267-2272.
When you book an appointment, we’re there to answer your questions and to take you along this path. So, for some people, it’s a short call. For some people it’s 45 minutes and we get into the budget. We talk about what’s going on and we listen. And we validate the circumstances that you’ve got and provide you hope that there is a path forward. There are different actions you can take that are going to help you improve your lot in life.
Nancy Snedden:
Thanks again for joining me today.
Bruce Sellery:
My pleasure, Nancy. Take care.
Nancy Snedden:
And I also want to thank our listeners for tuning in. As always, I want to hear from you. If you have a comment or question or topic you’d like me to talk about here on Your Money, you can email me @yourmoneyatbdo.ca or give me a call at 800-563-8337. Until next week, I’m Nancy Snedden. Stay safe and be well, everyone.
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If you have a question or a comment for Your Money, send an email to your [email protected]. This has been Your Money with Nancy Snedden of BDO, Licensed Insolvency Trustees, on VOCM.
Announcer 2:
The proceeding was a paid program on the VOCM Big Land FM Radio Network.
July 23, 2021
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