How to stretch your paycheque, improve credit and avoid payday loans

Here’s the answer to this week’s reader question about accessing money between paycheques and avoiding using payday loans.

Making things work between paycheques can be tough. How can I get better credit fast? I don’t want a payday loan.

—Michael

Finding money between paycheques

First, take a look at your full personal financial picture and note the immediate need for money between paycheques. Adding more credit or debt might not be a good long-term solution. You might find the sum that you need elsewhere in your budget.

You may want to contact a nonprofit credit counselling agency to help you look at that full picture and offer nonjudgmental, unbiased advice around next steps to take. But as a credit counsellor, we don’t really offer many short-term solutions when trying to guide our clients towards long-term financial well-being. Usually people don’t get into debt overnight, so the fix won’t be quick either.

You may consider taking a personal loan from family or friends, or some credit unions have introduced micro loans which offer better interest rates to clients who need cash for short-term emergencies, and check the fees on your account for overdraft.

As for payday loan services, they are a last resort. I understand why you don’t want one. A payday loan can feel like relief for those two weeks, but it’s borrowed relief that can end up costing the equivalent of hundreds of per cent in annualized interest when finally paid off, and creates repayment cycles that most people can’t break.

If you have outstanding debts in collections on your credit report, paying them off can quickly improve a score. The same with checking your report: statistics suggest around one in four has an error that’s worth fixing.

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Get better credit fast

Generally speaking, within a few months you may see measurable improvements with consistent, on-time payments and reduced debt. That could result in a 20 to 50 point increase during a three- to six-month window.

To increase your score even more, keep your credit utilization low—ideally below 30% of your credit limit. (Credit utilization is how much credit you’ve used compared to your credit limits.)

If you’re looking to build or improve your credit, consistency is key. Show that you’re creditworthy by paying your credit card bills as agreed and on time. You don’t have to go into debt to show creditworthiness. Even charging a double-double on your credit card, paying it off, and repeating the next month will do the trick.

From what I have learned, most people with credit scores around the 660 to 740 range start getting standard interest rate offers for credit cards or lines of credit. To get the lowest interest rates may require a score of 750 or more.

For those with no credit or poor credit, before you can get these offers, a secured credit card is a great way to start building a good record. You deposit some of your own money into the card account to secure it.

Then the creditor extends some credit over and above that deposit. When you pay consistently as agreed over time, that limit can get increased.

Remember, there are no quick overnight fixes for credit scores. Expect at least three to six months for visible improvements when you make consistent on time payments as agreed with your creditors—that’s the tried and true way to get your credit back on track.

Read more from this issue of The Get:

1. Paycheque deductions decoded: How to read a pay stub
2. What happens to your finances after a divorce in Canada
3. Interior Designer Tommy Smythe on buying a good home
4. The best apps for school that post-secondary students swear by