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When Bad Credit Gets In the Way Of a New Cell Phone

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Written by Publishing Team

Bad credit can get in the way when we least expect it. If a new mobile phone is on your wish list, here are some options if you can’t get financing

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s: I had a problem with my balance about three years ago when I lost my job. The company I worked for restructured, and even though I worked there for over 25 years, I ended up getting an early retirement package. I put what I could into my debt, but I still owed about $10,000 on my one loan. I couldn’t pay the bank because at 68 no one would hire me. I moved to the suite at my daughter’s house to cut costs and eventually the bank stopped calling to ask for their money. Then I went the other day to renew my mobile plan. I was going to get a new phone at the same time, but they said I didn’t qualify because my credit was bad. All I can do is renew my plan, which is fine now, but if my phone stops working, I’m not sure what I can do. Is there anything you could suggest? ~ Maureen


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a: Losing your job is stressful, and suddenly not having the money to pay the loan installments puts you in a very difficult situation. Fortunately, your daughter has been able to help you get a cheaper place to live, but the consequences of not being able to meet your credit obligations can affect you for a few years.

When you fall behind on loan payments, your creditor will contact you in an attempt to update your account. With 30, 60, 90 or more days to come and go, your creditor will put a note in your credit file to indicate how far behind you are. The credit bureaus will be informed of your account status.

We have two major credit bureau companies in Canada, Equifax and TransUnion. It is up to the creditor to the agency reporting your credit activity, but most major creditors in Canada will report to both. Once you are six months late on your payments, the creditor will determine whether to use the services of a collection agency to help them recover what you owe.


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How to get a copy of your credit report for free

What happens to your credit profile when a collection agency gets involved?

When a collection agency contacts you to repay your loan, your bank will usually “write off” your debt. This code on your credit report means that you have not been able to pay off your loan. The collection agency that handles your account will also make a note of it on your credit report. Observations that the collection agency is now handling your file tend to be negative, especially if you haven’t been able to resume making any payments even after several months.

If a person has only one or two debts reported on his credit report and each of the debts has a negative rating, it will be very difficult to get credit at a reasonable interest rate and with favorable terms and conditions. Contracted mobile plans are a form of credit, and if you keep up with your contractual payments, despite difficulties with other debts, you’ll likely be able to renew your plan, for example, to take advantage of better pricing.


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Can I renew my cell phone plan with bad credit?

Even when your credit rating is affected, you can renew your mobile plan due to what is known as a “light hit.” A soft or soft inquiry means that the creditor point checks your credit history, but only as it relates to it. If you keep your payments up to date with them, the instant check will return positive results. However, a simple inquiry is not used when applying for new credit.

Financing a new cell phone for two years with your new plan turns your renewal into a credit application. A full credit check is required whenever you apply for new credit, at which time the creditor will find out about the difficulties you have had in getting a loan or other debts. However, it can be convenient to renew your mobile plan at a lower rate, even if you are not able to get a new phone at the same time.


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Flexible credit check vs. fixed credit check: What is the impact on your credit rating?

As disappointing as it may be, not being able to get a new mobile when your current one is still working fine will ultimately save you money. Not only does getting a new device comes with phone payments, but it can also mean a down payment to reduce loan fees, connection fees, any optional collateral you may choose, and a case or other accessories. Being able to use your current mobile phone for a little longer also allows you time to consider your options about getting a different phone if your mobile phone stops working unexpectedly or needs to be replaced.

Get a new cell phone with bad credit

If you can’t finance a two-year cell phone due to bad credit, there are still ways you can get a new phone if you need it. Here are three options you might want to consider:


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Check in with friends and family

Ask your friends or family if anyone has an old phone that you can get. For those who upgrade every two years, there is often a previous phone at home in the drawer. Ask them to call their carrier to make sure the phone is unlocked. Next, restore the phone to its original factory settings. Instructions for how to do this are available from your carrier or online. Restoring the phone to its original settings removes the previous user’s information and gives the next user a fresh start with it.

Once the phone is “like new” move your sim card and try it. If successful, you may be able to avoid connection fees. If simply going over your sim doesn’t work, contact your carrier and ask them to enable the new device on your plan.


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Buying a used phone

Buying a used mobile phone from an ad you saw online can lead to huge disappointment if something goes wrong. If you decide to buy a phone from a stranger, make sure you know how to check whether it has been stolen, whether it has hidden water damage, and how to check its functionality without registering it in your account. You can look up how to do this online. As with all second hand online purchases, buyer beware. If the deal sounds too good to be true, it probably is.

If buying a new phone from someone on Kijiji or Craigslist isn’t for you, look for stores that sell used phones. Many of these retailers offer a six-month warranty. When they renew a phone to be ready for resale, they check that it’s not a blacklisted or stolen device, test its functionality, and check for any water damage. They may have fixed it themselves with a new screen or battery. Check the retailer’s reviews online or, for more peace of mind, ask your friends if they have a store they can recommend.


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Save for a new device

When money is tight, saving to buy a new device can be difficult. However, if your goal is to get a new mobile phone while restoring your credit rating, this might be your best bet. Determine the cost of your phone of choice. Then take a look at your budget to see where you can cut back on your spending. If you can’t spend less, think of ways to generate some income. Can you sell some things? Is there a chance to get a part-time job temporarily? Maybe you can work an extra shift or two each week. Then work backwards to achieve your goal.

How to create a balanced spending plan

When you define your goal to save for a new phone, make sure your goal is SMART: Specific, Measurable, Attainable, Realistic, and Timely. If saving the full amount is not realistic, set a goal to save at least a third or even half of the amount you need. Making a large down payment will go a long way toward persuading the cell phone company to lend you the rest. It will also reduce the remaining payment to a level that you can tolerate for the next two years.


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What does it mean to set smart financial goals?

Your credit rating will recover

There comes a time when the debt owed to your bank will reach “Mobile Mode”. This means that, having reached the statute of limitations in your county, and ashamed to sue you and make a judgment against you, the collector is no longer legally able to collect what you owe. This does not mean that the debt is gone. This simply means that unless you start making payments or otherwise acknowledge the debt, the creditor accepts that you are unable to pay back what you borrowed.

How to effectively communicate with debt collectors

I’m sure you can appreciate, this is not a favorable sign on your credit report or your file with the creditor. While your creditor can take steps to preserve this information, most details — good and bad — will fall off your credit report within about six years of your last activity date. This gives you a chance to rebuild your credit rating and not be penalized indefinitely for a difficult period in your life.


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The bottom line in dealing with a bad credit rating

A bad credit rating can make life a little more difficult and get in the way of what you want most. However, the key to rebuilding your balance is steady progress. There is no quick fix and no one you can pay to do it faster, no matter how much you want the latest and greatest new device. There are credit repair companies that offer to do this for you for a fee, but there’s nothing they can do and you can’t do yourself for free. So don’t throw good money after the bad. Learn how to rebuild your credit rating on your own, save your money for the things that matter most, and improve your financial skills along the way.

Related reading:

How to fix your credit rating and get a good credit score

5 myths about your balance and what to do instead

Why is it worth checking your credit

Scott Hannah is the president of the Credit Counseling Association, a nonprofit organization. For more information about managing your money or debt, contact Scott by E-mail , Check Or call 1-888-527-8999.



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