How to Raise Your Credit Score

Kerry K. Taylor: Hey, welcome to the Cash and Kerry Podcast. It’s a show where expert guests reveal the money wins and mistakes that make us human.

Kerry K. Taylor: Today I’m joined by Doug Hoyes. He’s a licensed insolvency trustee at Hoyes Michalos and Associates. He’s the author of Straight Talk on Your Money. And he’s the host of Debt-Free in 30, a podcast that’s all about money debt and how to get out of it. Today we’re talking about how to rebuild our credit. Hey, welcome to the show, Doug!

Doug Hoyes: Great to be here, Kerry

Kerry K. Taylor: We need good credit in all areas of our lives. Don’t we?

Doug Hoyes: Yes. And we need credit in the obvious areas. Cause well, if I’m going to buy a house then I need to get a mortgage and I want to get as good a rate as I need to get, but you also need good credit for things like renting an apartment.

Doug Hoyes: Because if it’s a competitive environment and the landlord can look at 12 different applications, they may just decide to pick the one who has the better credit.

Kerry K. Taylor: Let’s get a high level, look at this. Cause there is your credit score, your credit report, your credit history. What’s the difference between all of them, because some people want one thing and other people want another, how do they all work together?

Doug Hoyes: Yeah. So your credit report is. Well, it has got a bunch of information on it. Your name, your address, where you work, where you live, how long you’ve lived there, and then it lists each of the different creditors that you are dealing with now, or have dealt with in the past. Information on a credit report, and I’m going to oversimplify it, but in general, it purges after six years. So that credit card you had 10 years ago that you closed 10 years ago, it’s not showing up on a credit report that someone else is looking at. So that, that lists all the information. Then the various different lenders and agencies take the information that’s on your credit report, do some fancy math that I don’t understand because they don’t tell me how it works and they translate that into a credit score. It’s a three digit number. I think the lowest score you can get is 300. The highest is 900. I’ve never seen anyone with 900. But each credit score will be different if you get it from Equifax or TransUnion, almost for sure it will be slightly different and it might be considerably different if there’s significantly different information on, on both, credit reports, what people focus and obsess on is their credit score.

Doug Hoyes: Because of course, if you have a higher credit score that makes you a better person, right? That’s how you judge someone’s moral character in this country, but it’s the credit report that’s actually more important. Because that’s the raw information that is used to generate the credit score. If you can clean up the mistakes that are on the credit report, then you’re much more likely to have a more appropriate credit score.

Kerry K. Taylor: Right. So we should focus on improving our credit history, but I’m still obsessed about the score. I mean, I didn’t have a great score. And when I got an apartment, so this is, this is what got me. When I moved from British Columbia to Toronto, I hadn’t rented an apartment in forever. So I was shocked when my prospective landlord asked for my credit score.

Kerry K. Taylor: And, it was tough because my credit score wasn’t so great at the time. And I’ll tell you why later, and maybe you can make sense of it, but it’s, it’s really hard when that credit score pops up and you’re not ready for it. So what is a good score?

Doug Hoyes: Well, it is, you know, what is a good score for what you want to do?

Doug Hoyes: So if what you’re looking to do is rent an apartment. You are competing with a whole bunch of other people who are probably not multi-millionaires. And so in that venue, perhaps a credit score of 650 is, is perfectly acceptable. Um, if you want to. Uh, get a good rate on a mortgage. Well, something up in the seven hundreds would be better.

Doug Hoyes: And obviously if you’re into the eight hundreds well then you’ve got one of the top credit scores, there is so it’s, it’s a case of what do I need to do and therefore, what score do I need to accomplish that specific borrowing task?

Kerry K. Taylor: Okay. Let’s, let’s look at the factors that affect your, your score. So in your course, rebuilding credit, you say there are five factors that affect your credit rating.

Doug Hoyes: Yeah, and history is, tends to be the biggest one. So which kind of makes sense, right. Um, you know, if, if I’ve got a whole bunch of bad debts on my credit report, and that is going to drag down my, my credit score.

Doug Hoyes: So that’s certainly the, the area you want to focus on the, the mix of the credit will also have an impact and then utilization, which is. You know, something that you have a considerable amount of control over also has a significant impact on your, your credit scores.

Kerry K. Taylor: Okay. Well, let’s talk about credit utilization, because this is, this is the one I got wrong in your course.

Doug Hoyes: Okay. Well, because there’s a lot of misinformation about this. So utilization is exactly what this, the word sounds like. How much of my credit am I utilizing? So if I have a credit card that has a $10,000 credit limit. And if I continually carry a balance of $2,000, then my utilization is 20%. I’m using 20% of my available credit.

Doug Hoyes: So. Again, I don’t know the exact algorithm that your lender is using to calculate their credit score. And therefore, I don’t know what credit utilization is the perfect number, my opinion, based on all of the credits reports and scores I’ve seen is that the best utilization number is as close to zero as possible.

Kerry K. Taylor: How do yo do that? How can you have zero?

Doug Hoyes: Well,

Kerry K. Taylor: That’s what stumped me. I’m like, how is that possible?

Doug Hoyes: Well, you can’t because if I go in and buy gas for my car, even if it’s only a hundred dollars and I’ve got a $10,000 limit while my utilization is not zero. People don’t fully grasp is that your credit report is a snapshot at a point time.

Doug Hoyes: So if my statement balance is due on the 21st of the month and I pay it on the 21st, I never incur any service charges, no interest I’m completely up to date with my credit card. But if my credit score is computed three days before that, when I owed $5,000 on my credit card, my utilization at that point in time was 50 per cent.

Doug Hoyes: And that is a higher utilization than zero. And therefore that has the potential to depress your credit score. So that’s why my goal is to target as close to zero as possible. Not just, I want to make sure I’ve paid it at the end of the month. And again, I’m saying this, if your goal is to get as high a credit score as possible, if you don’t care, then don’t worry about it.

Doug Hoyes: Pay your balance when it comes due. And you’re good, but not realizing that that’s how the calculation can work, can be depressing your credit score. So your question is how do I get my utilization as low as possible? Well I’ll tell you what I do. I pay my credit card every week. Now I’ve got a credit card that is used for business purposes.

Doug Hoyes: We put a lot of our company expenses through it. And so if I didn’t pay it pretty regularly, I’d be bumping up against my limit because I don’t want to have a, you know, a massive limit on my card. So I just go in online banking, pay it every week. And that means number one, I never have to worry about being late with my payments, but I’m also keeping my utilization as low as possible.

Kerry K. Taylor: See, I don’t think about that because when I see my credit card statement, it has this big due date at the side of it. Right. So I look at that, due date and I’m like, okay, that’s the rule. That’s what I need to pay it by. So I don’t think about paying it sooner. Cause in my mind I’m kind of anchored to that date, but that’s a big mistake. Isn’t it? You’re kind of playing the credit card game.

Doug Hoyes: Well, yeah, I don’t believe in due dates. That’s not part of my own, I don’t believe in at all, I believe. And again, if your goal is, I don’t want to have any late fees or pay any interest then yes. Pay your bill on the due date. Here’s the problem with that. Is your does your paycheck come in on the 21st of the month, which happens to be when your credit card is due?

Doug Hoyes: Probably not.

Kerry K. Taylor: No, I’m, self-employed, it’s random when I get paid.

Doug Hoyes: Exactly and even if you have a conventional job, you’re getting paid weekly or bi-weekly, or semi-monthly, there’s a few jobs where you’re paid monthly, or if you’re on a pension or, or some other, you know, monthly things. Most people more than half of Canadians who are employed are paid either weekly bi-weekly or semi-monthly.

Doug Hoyes: That just makes intuitive sense to me. So my strategy with my credit card bill, and with any other bill, you can use this with your hydro bill, your, your gas, your phone, whatever. Is to pay it as often as I get paid. So if I get paid bi-weekly, why not just take my paycheck and say, okay, I’m going to pay half my phone bill, half my hydro bill, and whatever’s owing on my credit card today.

Doug Hoyes: And that way I’m, I’m never going to be late. Because I’m always paying in advance and that’s how my cash flows. So it makes it that much easier. Now I understand it’s kind of hard to do that with rent because your landlord doesn’t want you to paying bi-weekly and, and whatnot. But if you want a strategy to keep your utilization as low as possible, there’s a strategy right there.

Doug Hoyes: Pay your credit card as often as you get paid

Kerry K. Taylor: See, and that’s the strategy I didn’t know about when I went to rent an apartment in Toronto, because before moving, I thought, okay, I’m going to clean up my financial life. I had two credit cards. One of them I’d had for just over 10 years and I never used it. So I thought, okay, I’m just going to close this account because I don’t need it.

Kerry K. Taylor: And then I put all my moving expenses on the one credit card I had. So the flights for all my family, I’m packing up my stuff, shipping it across the country. And I essentially maxed out my credit card. So my utilization rate went from near to nothing, to all the way to the top. So when I went to get my credit score and to rent an apartment, Um, it was like in the basement, so,

Doug Hoyes: And there were two things there. One was that your utilization was really high on your card, like 100%, but the other was that your history got wiped out. So you had a card with 10 years worth of history that then you cancelled. So now what was supporting your credit score disappeared. So if you are getting a car, well, if you have a car loan, for example, and you pay off the car loan, well, once the car loan is paid off, it’s no longer debt it’s not there.

Doug Hoyes: And that history then begins to disappear because it’s now in the past, if you have a credit card and the credit card company says, oh, we’re going to upgrade you from a you know, a green one to a silver one or a gold one or whatever. Fantastic. But if they give you a new credit card with a new number, A new account number and then cancel your old one.

Doug Hoyes: Well, now your history has gotten wiped out. That’s a brand new card. And again, we talked about it. History is one of the determinants in your credit score. Longer is better. So I’m not saying keep all your old credit cards open because that has its own problems. You end up using them and getting into even more trouble, but be aware that closing an old thing does have a negative impact on your credit score. So had you come and talked to me many years ago when you were moving to Toronto,

Doug Hoyes: don’t close the old card yet use the new card, but, or maybe put the debt on, on both cards. And then once you’ve got the place. Okay. Fine. Pay off the old one and cancel it because you don’t need it needed anymore.

Kerry K. Taylor: Right. So don’t close an old account in good standing if you’re trying to maximize your credit score.

Doug Hoyes: Yeah. And again, I, I, I don’t want people to listen to this going, oh, Doug Hoyes is telling us how to maximize your credit score. I believe you shouldn’t be worried about it at all. You shouldn’t be ignore it.

Doug Hoyes: You should ignore it. I think it’s much more important to do things like, I don’t know, save money. I think that’s way more important. And because having cash in your pocket, you don’t really care what your credit score is. Do you think Warren Buffet, and I know he’s a buddy of yours. I don’t want to trash the guy here, but do you think he cares what his credit score is?

Doug Hoyes: Well, no, probably carries a billion dollars in his, in his pocket. So if you’ve got cash. And can just pay cash or debit for stuff. Then your credit score is much less important. So I think it’s far more important to focus on real life, you having cash. However, as we said at the start, I do understand that your credit score does have an impact on real life results, like being able to rent an apartment.

Doug Hoyes: And therefore if you take the simple steps to maximize it without hurting your financial future, then it kind of makes sense to understand how the game is played..

Kerry K. Taylor: Right. Okay. So where do I start? How do I improve, rebuild or repair my credit? Because if I’m starting from not a great place and I want to improve, where do I go?

Doug Hoyes: Number one thing I would do is I would go to TransUnion and Equifax and get my credit report. So you got to start with, with a base thing. So you can get your credit report for free from both of those agencies. Um, now we’re recording this in the year 2022, I believe. I think I’ve got my years, right? And at the moment you can go online and get your credit report from both of those people for free.

Doug Hoyes: You don’t even have to send something away in the mail. And so start with both of them. You know, print them off, look at them on your screen, whatever, and go through them and identify any errors that are there, because if there are errors and you can fix them, then that will probably make things better.

Doug Hoyes: And so an error might be that there’s a, you know, a card that isn’t even in your name, someone else has a similar name to you or the credit bureau has made a mistake. I would be willing to bet that of all the credit reports I’ve ever looked at in my life, the vast majority have at least one mistake on them. The credit bureaus don’t have any particular incentive to make sure the information is perfect because the only person who is being disadvantaged by imperfect information is you not the lender.

Doug Hoyes: And it’s the lender who’s really paying the credit bureaus. So they want to keep them happy. If they’ve got errors on yours, nah, who cares. So you want to go through. Identify any errors and fix them. So for example, um, we said that history is an important thing. How long have you been living at the place you’ve been living at? The longer you’ve been there, the higher your credit score will be all else being equal. So if they’re still showing your old address, or if they’re showing that you only moved there last week instead of two years ago, that’s a perfect example of something you want to fix. If they have your employment as your old job. Um, again, that’s something you want to fix. Now, if you don’t, if you’ve got a whole lot of debt and you don’t want your creditors tracking it down, maybe you don’t want an accurate, uh, address and an employer name on your credit report.

Doug Hoyes: So again, you’ve got to decide what your objectives are, but that’s where I would start. Get your credit report, go through it. And then you can, it’s called filing a dispute with the bureaus. But again, it’s, it’s fairly easy to do with TransUnion and you can do it right online. Here’s what the mistake is.

Doug Hoyes: Once they’ve corrected it, get a copy of your credit report. Again, make sure it’s corrected and that that’s going to get you a long way towards a better score without paying any money or having to do anything crazy.

Kerry K. Taylor: So what if both credit reports have mistakes? You know, they’re not the same all the time. I have to go and repair both?

Doug Hoyes: Yes.

Kerry K. Taylor: Oh, what a pain in the butt.

Doug Hoyes: It is, but again, that’s, that’s how the game is played. So what’s, that’s why you got to get both of them because you don’t know what lender is going to be using which credit report. You don’t know when you go to apply for that apartment, with the landlord, if they are going to pull your credit report, are they getting it from TransUnion? Are they getting it from Equifax?

Doug Hoyes: You don’t know. So you want both of them to be accurate. Generally, they’re both pretty close, but I actually talked to one client yesterday who. Their credit score was considerably different between the two, like 150 points. Like it was, it was huge because there was one glaring mistake on one of them.

Doug Hoyes: So that particular client was renting an apartment. So he said, well, give the good one to the landlord, with the higher score on it and then contact the other one and get that cleaned up. So yes, you, you definitely want it. You definitely have to do both of them. Yes. It’s a pain. But, you really don’t have any choice in the matter.

Kerry K. Taylor: So you have in the course, I read that you have a two plus two plus three rule for reestablishing credit. I do love a good rule.

Doug Hoyes: Well, there you go. And I believe that rule probably originated with, uh, Richard Moxley, who is the dean of, of the credit game here in Canada. And. The the rule is if you’re shooting to get as good a credit score as you can.

Doug Hoyes: And this would be particularly for someone who’s going through a rebuilding phase, maybe they’ve filed a bankruptcy or a consumer proposal, and it’s been finished. Maybe they’re young, maybe they’re a new immigrant, whatever. Then what you want to shoot for is two new trade lines. So credit cards, loans, whatever that have an authorized limit of $3,000 or more.

Doug Hoyes: And they’ve been open for two years. So that’s the two, the three, and the two are two to three, whatever order you want to do it with. So when someone goes through, let’s say a consumer proposal with my firm, they pay it off. They want to now begin the process of intensively rehabilitating, or re-establishing a credit I’d say, okay.

Doug Hoyes: First thing I would do is I would go and apply for one credit card. And again, this is, if you want credit, if you don’t then don’t do any of this and a chunk of my clients say you know what, I’m never borrowing again. So fantastic. Don’t worry about your credit score then, but for those who do, I would say, okay, go out and apply for, you know, one credit card and, you know, Yeah, I’m not one.

Doug Hoyes: And the reason it’s one and not 57 is everything you apply for will be potentially a hit on your credit report. And so if you go, you want to finance a car and you go to this car dealership and then two weeks later go to this one, two weeks later, and you just keep going from car dealership to car dealership for three months.

Doug Hoyes: That, and you get turned down at each one. That’s going to continue to lower your credit score. So you don’t want to be applying for too much all at the same time. Now, if you go to five car dealerships in the same day, That’s not going to hurt your score much because people understand what shopping around is. But if you apply for a whole bunch of credit cards, all of a sudden that’s gonna, that’s gonna hurt you.

Doug Hoyes: So you start with one and maybe, you know, you get a $500 limit, thousand dollar limit, whatever it is. Okay, cool. Use that for a month or two or three, make sure you’re paying it off in full whatever. And then you apply for a second one. And because you’ve already got the first one that maybe bumped your score up a little bit.

Doug Hoyes: So now you qualify for the second one. So now you’ve got two credit cards with a thousand dollar limit on each. Two not 50. Two. And then you wait a few more months, go back to the first card and say, Hey guys, will you bump up my score? I’m sorry, will you bump up my, my authorized limit by, you know, a couple of grand so, and if you’ve been good, likely they will.

Doug Hoyes: In fact, even if you don’t do anything with the passage of time, they’re probably going to increase your limit anyways. And then again, wait a few months, do that with the second one. So. It is quite likely that after doing all those things, and let’s say, it’s now been two years since you began the rebuilding process, you’ve got two credit cards with an authorized limit of $3,000 on each.

Doug Hoyes: It would be very common. And I’ve seen this dozens of times with my clients. It would be very common to have a credit score of 700 or higher as a result of that all else being equal.

Kerry K. Taylor: Wow. That’s a huge jump.

Doug Hoyes: Well, it depends where you started from. I mean, I’ve had people who filed a, a consumer proposal who had a car loan that they were continuing to pay because it’s a secured creditor.

Doug Hoyes: So it wasn’t included in the consumer proposal, that helps support their, their credit score. Um, in fact, I’ve had lots of people file a consumer proposal or bankruptcy with me when their credit score was 700 or higher. But they were at the point where it’s like, okay, I’ve been playing this game and juggling all these debts for so long.

Doug Hoyes: I haven’t missed a minimum payment, but I can see the train coming down the tracks, I’ve got to do something. So in those cases, the filing of the insolvency will drop their credit score quite a bit. But yes, it is. It is absolutely possible to rebuild if you’re prudent in and take the obvious steps.

Kerry K. Taylor: Okay. I want to give you an example of two different people.

Kerry K. Taylor: Let’s say the first person, they have no debt. They’re in the enviable position of having no student loan they’ve paid off their mortgage. Um, they have no lines of credit. They pay off their credit card, um, all of the time, every month. And let’s say they have kind of a subpar or average credit score. And then you have person two, that has. Um, a mortgage, a line of credit, multiple credit cards. I mean, they’re keeping up with the payments, but they have a significant amount of debt. So how is it possible that person two could have a higher credit score than person one?

Doug Hoyes: Because the credit score is not about the person. It is a technique that the lender uses to determine who they should lend to.

Doug Hoyes: And how much they should charge. So the credit score isn’t about you. It’s about the lender. It’s a marketing tool.

Kerry K. Taylor: It’s a marketing tool.

Doug Hoyes: Yeah. It’s and so the credit, the maximum credit score is assigned to the person who is the best borrower from the point of view of the bank. So to use your extreme example, I have got a billion dollars in the bank and I’ve never had any debt in my life.

Doug Hoyes: Well, my credit score will be, I won’t have one. I mean, there’s nothing to rate me on. So if I go and try to rent an apartment, it’s like, sorry, dude, we can’t rent it to you. Cause you don’t have, it’s like you’re 18 years old. You’ve got no score whatsoever. Whereas the person who’s playing the game, okay, I’m going to get five different credit cards.

Doug Hoyes: Get a $10,000 authorized limit on each of them but carry a balance of a thousand dollars or less. So my utilization is only 10% and I’ve got five different credit cards. And that’s one of the other things that factors into your credit score is the variety of debt that you have. So I’ve got a credit card and I’ve got a line of credit and I’ve got a car loan and a mortgage.

Doug Hoyes: I’ve got all this debt, but a, a low utilization. I will have a much higher credit score than that person who has a bunch of cash in the bank, but no debt. Which as you say makes absolutely no sense. If you’re looking at it from my point of view, as the human being, I am obviously in much better shape financially, if I have savings and no debt, but if you’re looking at it from the lender’s point of view, I don’t want someone who’s paying off their debt every month.

Doug Hoyes: I don’t want someone. Who’s got all their money in savings. I want someone who’s borrowing, paying interest. That’s what I want. And so that’s the person we reward with the higher credit score.

Kerry K. Taylor: Right. It just, it seems so backwards.

Doug Hoyes: Well, I, another word would be evil, but okay. Let’s go with backwards. It’s that’s, that’s why you have to understand what’s going on.

Doug Hoyes: What’s really going on. And if you can figure that out, I was like, okay, now I understand why I really shouldn’t be obsessing over my credit score because if your entire objective in life is to have as high a credit score as you can get, then what are you going to do? You’re going to have multiple credit cards.

Doug Hoyes: Maybe you’ll carry a little bit of a balance. Maybe you’ll do those kinds of things. Whereas what you did when you moved to Toronto was you said, Hey, I don’t need that other credit card. I’m going to cancel it. That was the correct thing to do from your overall financial health. Can’t get into any trouble if I don’t have that credit card, but it hurt your credit score.

Doug Hoyes: So understanding how it works, I think. Allows you to then decide, am I going to live my life for myself or I’m going to live it for the lenders? It’s an important question to ask.

Kerry K. Taylor: Right. But I think it kind of leads to like gamification of the system though. Like if I gamified it, then I would have had less competition to get an, uh, an apartment. It’s just, it’s so weird to me.

Doug Hoyes: Yes. And so long as you understand that you’re playing the game, then that’s fine. If you’re, you know, so, so you say to yourself, okay, I understand it’s a game. I want to increase my chances of getting the apartment that I want. So I’m not going to focus on saving lots of money.

Doug Hoyes: I’m going to focus on having a couple of credit cards and playing the game and keeping my old ones open and whatnot. But I understand it’s a game and I’m going to play the game. How I want to play it. I’m not going to use the credit card any more than I need to. I’m not going to carry unnecessary balances, all that kind of stuff.

Doug Hoyes: So, so I’m fine with playing that game if that’s how, you know, if it gets your objective. Because my ultimate goal for everyone is, my ultimate advice is you’re the boss. That’s it. That’s, that’s, that’s the whole thing. So if you’re in charge and you’re the one making the decisions and you’re not being manipulated by it, then I think you can, you can make those decisions for yourself.

Doug Hoyes: You had a great podcast with Dan Ariely, which is all about that whole thought process. You know, what’s really going on. And I think if you can be understanding what the game is, then you can choose how to play it or not play it. It’s entirely up to.

Kerry K. Taylor: Right. Okay. So the last part of your how to rebuild credit course is all about building good financial habits, not your credit score. So what are some of the steps? How do we go about doing this?

Doug Hoyes: Well, and it’s kind of what we talked about at the beginning. It’s, it’s, it’s mostly common sense. I want to have cash in the bank. That’s my thing. I’d like to have cash in the, or maybe it’s crypto or something. I don’t know what the kids are doing.

Kerry K. Taylor: No, no, it’s not. It’s probably like more like an emergency fund, right.

Doug Hoyes: There you go. Yeah. And, and we have it in our mind that, oh, well, if I have a line of credit, I have an emergency fund. Uh, yeah, no, that’s not an emergency fund. That’s access to credit that you’ve got. And. That’s not an emergency fund because the bank can cancel it at any time.

Doug Hoyes: So I would be focusing on, you know, okay, I’m going to do what I can to improve my credit. I’m going to clean up the mistakes. I’m going to have maybe one or two credit cards, you know, no more. But when it comes time for me to finance a car, for example, the bigger, the down payment I have, the easier it is going to be to get that loan.

Doug Hoyes: And of course the less I will pay in interest. So to me, it all comes back to, as you say, good financial habits, spending a little bit less than I earn each month and tucking that away. I think you also have to step back and say, so what’s my plan here? What am I trying to do? ’cause everyone’s plan is going to be different. For some people it’s like, well, you know, my kid is 10 years old, so I really want to focus on building an RESP for them. Cause I’ve only got a few more years to do that. For other people it will be that my kid fend for themselves, it’ll be a good lesson for them. It’s much more. Well, there you go. There’s my advice to your, to your daughter that, um, fend for yourself, um, to get a job now you’re 10.

Doug Hoyes: Like when I was 10, I was already 15 years old.

Kerry K. Taylor: I had a paper route.

Doug Hoyes: That’s right. Absolutely. It’s all on the, it’s all on the tablet. What are you talking about? Mum?

Kerry K. Taylor: I’m Gen-X, they sent us to work right away.

Doug Hoyes: Absolutely. And I’m not saying that’s what you should be doing or shouldn’t be doing. I mean, probably focusing a bit of time on your schoolwork is probably not a bad idea either.

Doug Hoyes: And maybe having a life is good too, but. The point is, for you, you have to decide what your priorities are because you can’t save money for everything. You can’t have, you know, full contributions to my kids RESP and my RRSP and the car fund and the house fund and debt repayment and all the other things. So you gotta prioritize, which means you got to actually think so, you know?

Doug Hoyes: Yeah. That’s exactly right. So lock yourself in a room for an hour, you know, maybe grab a beverage. You could decide what kind of beverage it is and, you know, just brainstorm what are all the things I’d like to do of which there’s lots of them. I’d like to build a rocket ship. Okay. Put it on the list. I don’t know if that’s feasible or not, but, and then you can kind of narrow it down and say, well, in terms of urgency, You know, my kids 10, I can only put money into an RESP till the kids 16.

Doug Hoyes: So I’ve only got six years for that one. Whereas my retirement, cause I’m still a young person. I’ve got lots of time that becomes less of a priority. Or maybe it’s, it’s something different. So you got to factor all those things into it. I don’t think we step back and ponder enough. We just sort of, oh, I should be putting my it’s it’s that time of the year when I should be putting money into an RRSP so I’m going to do it.

Doug Hoyes: Okay. Does that fit into your overall plan or not? If it does fantastic. If it doesn’t, um, you mentioned emergency funds and yeah, I’m a big believer in that. Um, if you put money into an RRSP and then you need it for an emergency, like I need new tires for my car, which is kind of a predictable emergency.

Doug Hoyes: Now you’re taking the money out of your RRSP you’ve got the tax implications. You’ve toasted your contribution room, that maybe wasn’t the best strategy. So. Throw it in a TFSA then at least you can move it in and out if you have to over over a period of time. So having that overall plan, I think, is, is going to save you a lot of heartache over the long-term.

Kerry K. Taylor: Right? I mean, one of the steps you also mentioned is you say, um, credit is not your money it’s debt. And I think a lot of people, when they get an increased credit limit on their credit card, it’s like exciting. Cause it’s like, oh, somebody likes me. I’ve done a good job. Therefore I’ve got more money to play with, but it’s not, it’s it’s possible debt that you might have to carry.

Doug Hoyes: Credit is debt, but so why do they call it credit? Well, because credit is a positive, happy word. I like to give credit where credit is due. You know, that’s, it’s a positive thing. If you went to the bank and applied for a debt card, Not a debit card, but a debt card. And if every time you went to the store, you said to the cashier here, I’m going to pay for that with my debt card in fact, I’m not paying for it, I’m going to borrow money on my debt card to pay for that.

Doug Hoyes: That would give you a totally different, uh, view of things. In the old days, and again, I don’t know if you’re old enough to remember this or not, but we used things called cash. And what it was was these paper things that were in your wallet that had numbers on them and you would go to the store and actually give them these paper things.

Doug Hoyes: And that made it kind of real. Cause it was a thing you had to take out of your wallet and give to them. Whereas now there’s this thing where you tap it and it just magically goes in. So we’re kind of separated from, from what’s what’s actually happening. So. I agree. You should use proper words. It’s a debt card.

Doug Hoyes: Credit isn’t a good thing. I mean, okay. There’s really no moral component to it, but don’t think of it as the more credit I have, the better I am. Again, what’s, what’s the reason they call it a credit card and not a debt card. Well, because it makes it easier for you to, to borrow, to get it.

Doug Hoyes: They don’t call it death insurance. They call it life insurance. Okay, but what is it for? Well, it’s for when you die. Okay. Well, that’s death insurance then. They call it car accident insurance. So that when I have a car accident, it pays out shouldn’t it be called? Well, no, there would be no industry if they called it death insurance. Right. So understand what the words mean, and you can play whatever movie you want in your brain, you just change the, change it to a debt card. And that may help you focus on spending less than, uh, perhaps you otherwise would have.

Kerry K. Taylor: I like that a lot, because it really helps reframe what these little plastic things really are. They’re they’re not credit for us. It’s not our money. It’s debt. So I appreciate that’s a great reframe.

Kerry K. Taylor: Thank you.

Doug Hoyes: Again, there are people watching this they are going to go well yeah, but the reason I use my credit card is I get points and I get the rewards. That’s fine. That’s, that’s fantastic. And if you’ve got the cash in your bank account and you go to the store and you buy the thing and you get your rewards, and then you go home and clear the card off, fantastic. You played the game beautifully, you got the rewards and you didn’t have any of the downside to it.

Doug Hoyes: That’s fantastic if that’s what you’re doing, but again, that’s understanding what you’re doing and playing the game to your advantage. You know, you know, good for you. I’m I’m all for it.

Kerry K. Taylor: Now you’ve mentioned, um, a consumer proposal a couple of times. When I first met you, I was like, what is this thing? It’s kind of like the best kept secret that in a tool that you guys have.

Doug Hoyes: Yes. So if you have more debt than you can hope to repay, and if you have debt, my advice is, well, pay it back. You know, figure out how much you’ve got each month, you know, start sending that to the people you owe money to. It’s always better to pay it off on your own because of course that is going to have the most positive impact on your credit score.

Doug Hoyes: Um, if you file a bankruptcy or a consumer proposal, that’s going to have a negative impact on your credit score. But it will get rid of your debt. So it’s something you do when you have really no other option. I think we all conceptually understand what a bankruptcy is. Okay. I’m going to lose my stuff and it’s kind of bad.

Doug Hoyes: Um, in a consumer proposal, it’s an alternative to bankruptcy. We’re going to the people you owe money to, and we’re making a deal. We say, look, I know I owe you 50 grand. I can’t pay it all back. But based on my income, my situation, how about I give you, you know, 20 grand. And so, yes. And so a typical consumer proposal might be something like a $300 a month, over five years, that would be $18,000.

Doug Hoyes: And so we go to the creditors with that deal. Every creditor gets one vote for every dollar you owe them. So the bigger guy has more sway than the littler guy. And if more than half of the dollars, say yes, in a consumer proposal, Then it’s a done deal. So we don’t even have to get everyone to agree. We just have to get most of them.

Doug Hoyes: And in the vast majority of cases, they agree. Cause I go to them and they say, Hey, look, I’m Doug Hoyes. I do two things, bankruptcies or proposals. If you don’t accept this consumer proposal, guess what, the person’s going to go bankrupt and you’re going to get less. So you’re not getting everything in a consumer proposal, but you are getting more than what you would get in a bankruptcy. And so if it’s a fair offer, most of the time, they’re going to agree to it.

Kerry K. Taylor: Wow. So, I mean, a lot of people don’t know about this tool because they go to say credit counseling where it’s a completely different process, but you’re not cutting a kind of deal like you are. You’re basically repaying a lot of the debt.

Doug Hoyes: Well, yes, it, consumer proposal is governed by federal laws. Well, it’s not something I made up. Credit counseling is essentially an informal arrangement. And so there are lots of perfectly good not-for-profit credit counselors out there. What they can do is work out a plan where you repay the debts in full, but they could get the interest waived in most cases.

Doug Hoyes: So, okay. I got 50 or $60,000 worth of debt in a in a credit counseling plan, a debt management plan. You end up paying well a thousand dollars a month for five years, that would be $60,000. Where in a consumer proposal. In the example I gave earlier, maybe you end up paying three or $400 a month instead of a thousand.

Doug Hoyes: They both show up on your credit report as an R-7, you know, uh, kind of the settlement category. But with the consumer proposal, the payments may be considerably less. Again, the payments are based on what the creditors will accept. Because they have to agree to it. And that’s based on what your income is, your assets and so on.

Doug Hoyes: So if you own a house that’s got $500,000 in equity because you’re in Canada and you bought it three weeks ago, then you’re, you’re not going to be able to get a consumer proposal done where you pay $20,000. But if your income is moderate, you don’t have a significant assets to repay then yes, the proposal would be the option.

Doug Hoyes: So it’s important to understand what the different options are. Consumer proposal isn’t right for everyone. Um, so you gotta, you gotta understand. So my advice to people is talk to a licensed insolvency trustee because we are licensed by the federal government. And the law says we have to explain your options, not just a thing I’m selling.

Doug Hoyes: I have to explain all of them, give you full information so that then you can make an informed decision.

Kerry K. Taylor: Right. So I’ve, I’ve I get a lot of email from people looking for advice. And I said, you should go see a licensed insolvency trustee. And they have this huge fear of doing that because they’re afraid that you’re gonna take all their money away or cash out their retirement. But in the end, they’re always, they’re always happy. They wish they had done it sooner.

Doug Hoyes: Yeah. It’s, it’s kinda like going to the dentist, you know, like, well, I mean, I, in the sense that I’m afraid to do it because I don’t know what’s going to happen. I don’t know I’m going to go to the dentist and they’re going to chop my head off maybe. I don’t know. I don’t know.

Doug Hoyes: Well no the the dentist’s job is to figure out what the problem is and then, you know, here’s what the different solutions are. And the solution is almost always better than living with the problem forever. So, I mean, you, you mentioned, you know, we’re going to take all your money.

Doug Hoyes: Well no, the rules say here’s how the rules work. So if you, for example, are living in Canada and have an RRSP, the rules say, even if you go bankrupt, you only lose whatever you’ve put into it in the last year. So, if you’ve been contributing or maybe your employer has been contributing to your RRSP for many years, you don’t lose that when you file a bankruptcy or a consumer proposal.

Doug Hoyes: And again, a licensed insolvency trustee can explain all these things to you. The rules are different in each province in Canada as to what you keep, how it all works, but the vast majority, well, the reason you file a consumer proposal is you don’t lose anything. You make payments to your creditors and then you get to keep all your stuff.

Doug Hoyes: So you want to talk to someone who has the expertise to explain how it all works. Exactly like you would go to a medical professional, if you have a medical situation and you want them to explain, well, why are you suggesting this treatment over that? Let me explain. I’m going to go on the internet and investigate it too, because of course we don’t trust anybody these days, but they you should be able to understand quite easily what the suggested solution is. And then you can make the decision for yourself.

Kerry K. Taylor: Right? So you map out a route for people and help them that way.

Doug Hoyes: Yeah, exactly. And what I don’t do when I have a serious medical issue is go on Twitter, or I don’t know, AOL or whatever the kids are using these days.

Doug Hoyes: I would prefer to talk to someone who is actually an expert. Now, I don’t know who is an expert. I’m not a medical professional, so I don’t know. So I ask them a bunch of questions, you know, and then I, once I’ve got that framework in my mind, then I can, I can do some research. But by doing that, you’ll realize, yeah okay.

Doug Hoyes: A licensed insolvency trustee. And there’s only about a thousand of us in Canada, so it’s not like everybody has this designation. It takes many years to, to get it. And it’s a complicated process, but as a result, we should have the knowledge to fully explain what your options are in language that you can understand, so you can make your own decision.

Kerry K. Taylor: Right? So every, I follow you on Twitter and every now and then you tweet about something called a credit repair company. How is this different from you? And should you use one?

Doug Hoyes: Well, again, I use the word evil once already. So a credit repair, like what does that even mean?

Kerry K. Taylor: I don’t know.

Doug Hoyes: Exactly. That’s the point?

Doug Hoyes: It’s kind of like, well, I am a medical repair person. If you have a medical issue, I will repair it. Wait a minute. Isn’t that what a doctor does? Oh, well, yeah, but a doctor has to have skills and licenses and stuff. So what these credit repair companies will do is they’ll say, yeah, we can fix it for you. Just give us money.

Doug Hoyes: Okay. But what can they do that you can’t do? So we talked about credit reports. What do you do? Well, you get a copy of your credit report and you go through it and you, you know, tell the credit bureau what’s wrong. And you, you clean up those kinds of things. That’s stuff that you can do yourself. A credit repair company doesn’t have any special powers other than that.

Doug Hoyes: Um, so that’s why you gotta be kind of leery about, about those sorts of things, the other, I mean, even worse than that is the places that say, oh, we can, we can settle your debts for you. We’ll repair your credit by getting you a deal where you only have to pay 20 cents on the dollar to eliminate your debts.

Doug Hoyes: Well, wait a minute. Didn’t we just talk about a consumer proposal and isn’t that a legal process that can only be done by a licensed insolvency trustee? So how can these other companies offer that? Well it’s because what they do is they don’t have to follow any rules. They get you to send the money, they assemble a bit of information, and then they call up their a, you know, a licensed insolvency trustee that they know and say, Hey, I’ve got this file for you. Here you go. I’ve already charged the guy two or three grand. So off you go in and do the work.

Doug Hoyes: Now I, of course don’t accept any of those kind of referrals. I would prefer people come to me directly and not pay any fees. Cause the law says, I am not allowed to charge any fee at all until you actually file the proposal or the bankruptcy with me, there are no upfront fees. I’m not allowed to charge them.

Doug Hoyes: So that’s one of the ways, you know, that someone you’re dealing with, isn’t completely reputable if they are charging upfront fees and in our venue. So again, check out the person, what are their qualifications? I keep going back to the medical analogy, but before I have surgery, I’m going to want to know that the doctor has like an MD or something. Like isn’t there some kind of qualifications or something like, I I’d want to check that out. And so I think if you do some basic research, you can avoid a lot of these scams that are out there.

Kerry K. Taylor: Yeah. I appreciate that. And it, but I think it’s getting super hard. Cause you have all these, um, you have all these money influencers and you’ve got all these social media streams and you’ve got people with vested interest in selling you stuff. It just, you know, all the credentials, right. Everyone seems to have several letters after their name. So I’m glad you could set that straight because I think it’s, it can get really confusing for the average person. Right. You Google it and these people buy ads and sooner or later it’s like, how, how do you know, right?

Doug Hoyes: Well, and you, you had a key phrase there vested interest. So before I enter into any financial transaction with anybody, I’m always again in the back of my head saying, what is your vested interest? Why are you suggesting this to me? When I go to the car dealership, I understand what’s going on. That person wants to sell me a car.

Doug Hoyes: Okay. So if I go to dealer ABC, they’re probably going to sell me an ABC car. They’re probably not going to sell me a different brand. That’s not how it works. Right? So you’re on guard, your spidey sense is tingling, right? When you go to the car dealership because you understand the nature of the game. But when you walk into the bank, I realized nobody’s done that for two years, but you remember in the old days, when we would walk into the physical bank, And the bank person would say, oh, Ms. Taylor, it’s great to see you. We have this investment that we would like to put you in because we see that you have money in your bank account.

Kerry K. Taylor: They never say hi, nice to see you.

Doug Hoyes: I’m shocked at that. But they, because at the bank, the computer, when you put your card in the machine and then punch in the numbers has, you know, here’s the three things you should try to sell the person.

Doug Hoyes: Maybe it’s a credit card, a car loan, maybe it’s a mutual fund, whatever. We don’t think that that person has a vested interest in selling me something. Cause we don’t think of that person as a sales person, but they are. And it’s the same with these credit repair companies, debt settlement, companies, whatever.

Doug Hoyes: So, so what are they doing exactly? Why am I paying the money? And could someone else do that better? If I have a car problem, do I go to a car consultant? Or do I just go to a mechanic? Well, we know all mechanics are crooks and they’re going to steal from you. Okay. Well, so then maybe you should do some research and ask some questions to understand how it works.

Doug Hoyes: And I think it’s the same in the financial world. So how do you get paid exactly? Are you on a commission? How does it work? When you come in to see me I’ll tell you exactly how I get paid. Cause it’s set by the government. Every licensed insolvency trustee gets the same percentage of the pot in a consumer proposal.

Doug Hoyes: So, and we show you right to the penny. Here’s how it all works. So if you can ask some questions and understand what’s in it for the other person, I think that gives you at least a bit of a guide as to where you want to go with it.

Kerry K. Taylor: Yeah. And I think people just need to not be afraid to ask those questions, especially when you’re coming from a place of, of being in financial trouble.

Kerry K. Taylor: It’s really hard to ask those questions because you feel vulnerable. Right. So.

Doug Hoyes: Well, and you’re embarrassed because only when someone comes to see me. This is the first time probably that they have been in this situation. I mean, think about it. How can you possibly have debt if you didn’t, at some point in the past, have good enough credit to be borrowing that money in the first place?

Doug Hoyes: So something was going right. You were able to get the credit card, the car loan, the bank loan, whatever. And then something happened to make it not as right. Might’ve been a medical issue, a marriage breakdown. There was this thing, I don’t know if you follow the news or not Kerry but there was this pandemic, something or other that happened.

Doug Hoyes: And that made a big change to, to a whole lot of people’s lives for a couple of years. So as a result, there are people who are worse off now than they were in the past. But we think about what it was like, oh man, you know, things used to be going good. I kind of blame myself that things are going bad now.

Doug Hoyes: Well, It could have just been circumstance because that’s usually what it is. Stuff happens. So you’re much better to, you know, suck it up. Don’t worry about the embarrassment. I’m not judging you. I mean, I I’m meeting with a bunch of people every day. I don’t have time to judge people. When I go to the dentist, is the hygienist judging me because I didn’t see.

Kerry K. Taylor: Oh yeah!.

Doug Hoyes: She probably is. But you know what, so what I’m anyways, I don’t care. I’m I’m worried about myself. I’m not worried about anyone else. So you’ve, you’ve just got to do. Debt problems, money problems are not going to go away on their own. It’s unlikely you’re going to win the lottery tomorrow. So, and I know I won’t, cause I don’t buy a ticket.

Doug Hoyes: So you can’t just hope that things are going to just maybe, you know, turn around. Do the math, you, you talked about the credit card statement that has at the top of it. You know, here’s what your minimum payment is. And if you only make the minimum payment, it will take 400 years to pay it off in full. I don’t have 400 years.

Doug Hoyes: I don’t have that kind of time. So you’re better off suffering through a minor amount of embarrassment and dealing with the problem and getting on with it.

Kerry K. Taylor: Right. And I mean, a large number of people that find themselves in financial difficulty are, there not because they’re, they’re buying a lot of stuffer for, you know, kicks and giggles.

Kerry K. Taylor: They’re actually having trouble keeping up with the cost of living, right? Like that’s what blew my mind when I first started writing like this, this just paying rent, paying food, even paying daycare, these things can add up. And next thing you know, you’re on a slippery slide and it’s not because you went out and bought, you know, a ton of gadgets.

Doug Hoyes: Yeah, absolutely. The vast majority of people I’m helping, it has been circumstance as opposed to, I went to Vegas and blew all my money. The cost of living has been going up over the last number of months. If, if I’m to be believed, you know, if the media is to be believed and I do believe it should go to the store, it costs money.

Doug Hoyes: Yeah, exactly.

Kerry K. Taylor: Groceries are blowing my mind right now.

Doug Hoyes: It’s it’s and it’s obvious, like, it’s this that’s how much it costs, but wages are not growing as fast as expenses are. And, you know, frankly, they never do. Inflation is a hidden tax on all of us. So it’s no wonder people get into trouble. My average client and I’m based primarily in Ontario has take-home pay each month after taxes of around $2,600.

Doug Hoyes: We all understand what an average is. Some people are way higher, some people will be lower, but I mean, your story about renting an apartment in Toronto, uh, you should see what they cost now. It would not be unusual for someone to be paying $2,000 to rent an apartment in Toronto. That’s kind of hard if they got 2,600 bucks a month coming in.

Doug Hoyes: So obviously in that situation, you’ve got to have a roommate, you got to live outside the city, whatever. But when you add in all of those other costs, all of which are going up, it’s not a shock to see that people just don’t have the, the money to support it. My clients, and again, these are the people with an overwhelming amount of debt, have roughly a couple of hundred bucks a month that they can use for debt service, making their minimum payments, interest, payments, whatever, but because of the level of debt they’re carrying, which is up in the $50,000 range, their carrying costs are something like $1,200 a month. Well, there’s a thousand dollars shortfall a month. There’s no way that they can possibly be, be surviving. And that’s where the, you know, these more extreme, but more permanent solutions are required.

Kerry K. Taylor: Fair enough. Okay. Is there anything we’ve missed? Anything you’d like to add?

Doug Hoyes: Oh, well there’s we could, we could go on for many hours, but I think my, my concluding comment is what I said earlier. You are the boss. So it doesn’t matter what anyone else thinks, what anyone else is doing. You decide what’s important to you. And then you forge the path to that and just, you know, shut out all the noise. Don’t worry about what all the influencers are doing. You know, do a bit of research, understand the basics and, uh, and move forward.

Kerry K. Taylor: Fair enough. Where can we find you Doug?

Doug Hoyes: Uh, right here. I’m right here kerry Oh you mean, big picture. Yeah. So Twitter is my name. Doug Hoyes D O U G H O Y E S. I kind of go in fits and starts. I can’t stay on there too long. Cause it’s kind of, you gotta to wash your hands after you’re there.

Doug Hoyes: Um, my company’s website again, it’s it’s my name Hoyes dot com H O Y E S dot com. And we’ve got tons of information on all the things we talked about. Um, we’ve also got a YouTube channel, which I’m guessing is Hoyes Michalos.

Doug Hoyes: And then, uh, my podcast, which you’ve been on a number of times Debt-Free in 30, which is on YouTube and every podcasting app. Once a week, we talk about these types of issues and many more.

Kerry K. Taylor: Right. And your course is available on your website. Now I’ll put the links in, um, in the show notes before I think everyone should do the course.

Kerry K. Taylor: I learned so much from it. It’s really quick. It’s only about 45 minutes and it’s just packed full of so much information. I wish we all learned previous.

Doug Hoyes: We tried to distill it down to here’s the things, you know, so yeah. You go to courses dot hoyes dot com and you’re right, there’s links on our website as well. And, and, you know, click the button to sign up and it doesn’t cost anything.

Doug Hoyes: We’re not selling your email address to anyone. It’s just the software we’re using to do it. And yeah, I mean, I hope it’s informative. And if there’s anything that needs to be added to it, or people disagree with me on, then hey, reach out. We’re always, uh, happy to learn new things.

Kerry K. Taylor: Absolutely. Okay, Doug, thank you so much for speaking us today with all things credit. Thank you so much. It’s been a very enlightening and absolutely amazing. Thank you.

Doug Hoyes: Thanks Carrie. It’s been great. Thanks very much.

Kerry K. Taylor: Thank you so much for tuning in today. I always love talking to Doug. So I’m really curious to hear what you think. What was the biggest insight you’re taking away from today? I want you to leave a comment below and let us know. Now, as always, we’ve got some of the best conversations happening over at Squawkfox.com.

Kerry K. Taylor: So head over there right now and leave a comment. And if you’re not already subscribed to our email list, I don’t know what you’re thinking. You’ll get access to our free budget bundle that’ll help you get a fresh start with your money. It’s got over a hundred thousand downloads, so you know, people love it. Get it now.

Kerry K. Taylor: Thank you so much for tuning in today and I’ll catch you next time.