If you pay attention to your finances and rebuilding your credit score, your bankruptcy will not be a barrier to any dreams that have a financial component, such as a home, recreational property, a car, retirement, or furthering your education. Here are a few practical tips that are surefire ways to rebuild a good credit score:
Discharge your bankruptcy as quickly as possible.
If this is your first time declaring bankruptcy in Canada and if you meet all your bankruptcy duties, you qualify for an automatic discharge from bankruptcy. The more quickly you discharge your bankruptcy, the more quickly it is removed from your credit file. Your bankruptcy duties include, but are not limited to:
- Attending two credit counselling sessions, one before 60 days and another before 210 days have passed
- Giving your bankruptcy trustee a monthly written report with proper documentation of your income and payments you have made
- Promptly surrendering any non-exempt assets or surplus income during the bankruptcy
- Providing your bankruptcy trustee with the required information to complete your income tax returns
Ask for a copy of your credit report.
In Canada, ask TransUnion Canada and Equifax Canada for a copy of your credit scores shortly after your bankruptcy is discharged (you can pay a fee to request them online or send a written request for free by mail). Although all history of your debts before bankruptcy are supposed to be wiped out, human and computer errors do happen.
If you see any errors on your credit file, such as past due debts that were discharged by your bankruptcy, notify your bankruptcy trustee and the credit bureaus as soon as possible. Check again in a few months to make sure that the error has been corrected.
Begin saving money.
Would you feel more comfortable about making a personal loan to a friend who is known for being broke and always on the move or to a friend with a good job who is careful with their money? Exactly! Commercial lenders are much happier lending money to people who don’t really need it.
Open a savings account and start depositing a percentage of your income each month. The suggested figure is 10%. Most people get a bit scared by such a big chunk, so you can begin by putting in 2% for three months, then bumping it up to 4%, and so on until you have reached the 10% goal. This is a painless way to make saving money manageable.
If you were deemed to be earning surplus income during the period between filing and discharging your bankruptcy, you had to make monthly payments to your trustee. Instead of putting that money back into play, simply put the same amount into your savings account.
This savings account will soon provide the means to purchase an RRSP or make a down payment on a house or car.
Get a secured credit card.
Once you have some savings, you can apply for a secured credit card. Basically, you put money into an account that only the credit card company can access, and they will give you a card with a limit of the same amount that is deposited. On your credit report, it will show as a regular card, and so your monthly payments build up your rating.
Be careful. Some people assume that the credit card company will simply take their payment out of the secured deposit if they are late with a payment. This is not the case. If you don’t pay your secured credit card bill on time, it will be noted on your credit score. The secured deposit is only accessed once you are a few months delinquent.
Take out an RRSP loan.
Use $500 or $1,000 from your savings account at RRSP time and ask your bank for a matching RRSP loan. The refund you get on your taxes will probably be big enough to pay off 50 – 60% of the bank’s loan. Then you can pay down the remaining amount. Your credit file now reports that you have successfully paid down a loan, which raises your credit score.
“Don’t let your past decide your future.” Frederick Bliss
Many people think that they will not be able to get credit after bankruptcy. This is not true; you will be able to borrow money after bankruptcy. It will just be more difficult than if you had a good credit rating. Your credit rating can actually get better following a bankruptcy, providing you follow a few practical steps. Once your bankruptcy is discharged, you can pay bills on time and build up cash reserves and take other actions that will rebuild your credit score.
You may even be thinking that you never want to go into debt again because of the stress that led up to the bankruptcy. Going into debt is a different kettle of fish than having access to credit. Most people require a mortgage to buy a home. If you want a newer car, you will probably need to use a loan or lease to afford it. If you need to book a flight or make a reservation, it is difficult to do so without the use of a credit card. Debt becomes a problem when you start using credit to make purchases that don’t fit your income level. But not having access to credit can make living in the modern world difficult.
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