Credit Repair 101 – How the Credit You Choose Impacts Rebuilding Your Credit

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Your credit score is affected by many things, but did you know that the type of credit you choose actually plays a factor?

Many people approach credit repair by choosing a credit product and paying that credit off on time and in full. While this is a good approach in theory, in practice the actual success depends on the credit product that you choose in a first place.

Let’s break it down. Credit products you might consider for rebuilding your credit:

1. Payday Loans

These types of loans are the most expensive to repay (they have the highest interest rates for the amount you can borrow and need to be repaid in the shortest timeframe). So, not only are these often difficult to repay – which could result in bad credit habits like defaulting on the loan or taking out another loan to repay the first – but there is actually a much bigger impact to your credit score that you might not have realized:

Payday loans don’t report to the Canadian credit bureaus.

Even if you take out a payday loan, and repay it on time and in full, the lender won’t report to the national credit agencies, TransUnion and Equifax. So, if you are trying to repair your credit, choosing a payday loan in fact won’t help you at all.

2. Credit Cards (Including Secured Credit Cards)

Secured credit cards function similarly to a debit card where you make a pre-paid cash deposit onto the card and then spend within that limit. This can be a great way to rebuild credit because many secured credit cards do report to the credit agencies So long as you maintain good payment habits, you can rebuild credit this way.

But — and there is a big but — there’s a lot that can go wrong when you are using credit cards for credit repair.

Even with a secured credit card, if used improperly (for instance, if you max it out or don’t pay your bills on time) they can have a negative impact on your credit score. And if you place too small of a balance on the card because you don’t have an upfront cash deposit, there might not be enough to have much of an impact at all on your credit score.

Some secured credit cards also have variable interest rates, so your payments could be hard to plan in advance.

3. Car Lease

Sometimes people choose to lease a car to rebuild their credit. Car leases often have lower interest rates and lower monthly payments than financing a vehicle, so it might seem to make sense upfront to do this.

However, because leases are like a rental (you don’t actually own the vehicle) even if you maintain good payment habits, it will have less of an impact on your credit score than repaying the same amount for a loan.

The Canadian credit bureaus will rank this as lesser than other types of credit products, like a personal loan, so even good habits won’t have as much of a positive effect.

4. Personal Loans

Many personal loans report to the national credit bureaus – which is vital for your credit score so long as you maintain good payment habits.

But there are other perks to personal loans, too.

Personal loans are known as installment credit — meaning it’s a loan for a fixed amount of money. When you take out a personal loan, you have a clear payment schedule. You’ll know exactly what you have to pay and when you have to pay it.

Most personal loans also come with a fixed interest rate, so you don’t have to worry about payments changing with interest rate increases or other variables. As long as you follow the terms of your loan, this is the best option to rebuild strong credit!

If you are considering taking out a personal loan, be sure to verify the payment terms and that the lender reports to the national credit bureaus.

Prudent Financial Services offers bad credit personal loans in Toronto and the GTA. We’ll help you identify the best way to rebuild your credit.

Our loans are all open and repayable at any time. We offer online and same day financing with no upfront fees. Please note that all loans are subject to pre-approval and depend on job, income, debt, and assets.

Get more information about our services by calling 1-888-852-7647 or visiting

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