How to get Credit after bankruptcy = Improving your Credit Score

In order to repair one’s credit score one must first understand some fundamentals in what is a credit score.
Building good credit or Fixing bad credit, what is the difference?
It will actually takes longer to rebuild credit than building new credit.
Building new credit is similar to building a new home.  Start out with a good plan, use good materials and a solid foundation.  It takes time and with a proper budget and controlled spending habits one will establish a solid financial structure which will reflect positively to lenders.
Repairing credit can be compared to renovating an old, poorly constructed home.  Lenders can still see the old house, so although you may have added some new shiny cabinets, you can not cover up the old electrical or cracked foundation.  Positive spending habits on top of old bad credit still carries the baggage of days gone by.  There is a reason it is called credit history, it is a reflection of the past financial habits, not the future or the most recent.

  1. Understand that history will repeat itself if left unchecked.  Understanding and recognizing the reasons and causes that you got into financial difficulty is the first step to moving forward.
  2. Correct and alter your life style and spending,  budgeting habits to be controlled for your future.
  3. Rebuild your credit and understand how your credit score is assessed.

Rebuilding your Credit is not easy or fast.  Nothing great is ever fast or easy…. Remember that!!  Your Bankruptcy will remain on your credit bureau for 7 years after discharge.  Your Consumer proposal will also remain on your credit bureau for 3 years from completion.  These “marks” are negative on your bureau, however this does not mean you can not borrow money or start to prove that you are worthy of receiving credit.  And because you have those credit alerts in your credit history, how you move forward is more important now than ever.

Secure and keep safe a copy of your bankruptcy discharge.  Usually the trustee will send it to you and the credit reporting agencies.   However, not always does that happen, you may need to update the Transunion and Equifax.   Make sure the agency has a copy of the discharge.  Guaranteed you will need to produce this discharge multiples in the future years, keep it safe.

Check your credit report card with both credit reporting agencies.  Are there errors, inaccuracies or outstanding issues that were tied to our finalized in your bankruptcy.  All debts related to the bankruptcy need to be acknowledged by the creditor as terminated in the bankruptcy.  It is important to review you bureaus carefully, some times an old debt that was included in the bankruptcy will not be reported as closed or included in bankruptcy.  This debt then appears to be active to future lenders.   Equifax and Transunion provide easy access to dispute and update services online

Pay Your Bills  Sounds simple but paying your bills on or before the due date is the foundation of rebuilding your credit.  DO NOT MISS ANY PAYMENTS

Secure new credit  Not as simple as it sounds.  You have a bad rap that will turn away normal lending companies.

  1. One solutions to rebuilding trust in the credit world is a secured credit card. Giving the credit card company a deposit of $500 or $ 1000 will get you a credit card for the same value of the deposit.
  2. Secured Utilities, cell phone, gas or retail credit cards – These may charge you start up fees, be cautious on interest rates and pay off the debt every month.
  3. Bank RRSP loan, many banks will advance funds to buy an RRSP with the same bank.  It is secured with a lien to the bank until paid off.  Basically making it a win/win for the bank. A great opportunity to save taxes, save money and rebuild your credit.
  4. Any financing you get at this point will be a gift, treasure it and treat it with care. Any financing you get will also come with additional clauses or higher interest rates.  So although you do not want to pay extreme rates, you will rebuild a credit history by making monthly payments on time.
  5. Keep in mind, your old negative history will stay with you like a weight on your shoulders but new positive credit will be a beneficial influence.  You are starting over, use this opportunity wisely and with caution.

Save Money

  1. Start small but be sure to start.  Easiest way and most effective way, GIC, go to a bank and get a monthly contribution set up for a guaranteed investment certificate.Having these savings building up over time, will reflect that you are serious at turning around your financial history.  The savings will grow, even if it is only $50.00 per month.  If not a GIC then look at a TFA, the savings in a tax free savings account offers additional tax incentives and prevents “spontaneous purchases”.

Be cautious, not desperate.

There are many predatory lending companies that specifically promise loans to bankruptcy or insolvent people.  They wave credit in the faces of people that are not ready to deal with the obligations of credit.  Hooking them into loans with insanely high interest rates.
You can review your credit bureau from both of the Canadian sources online and easily.
Transunion or Equifax have easy access to your credit score and credit bureau.   Both companies offer tools to assist you in monitoring your credit score.  Providing ( for a monthly fee) an alert if any changes are made to your score that would negatively impact your ability to borrow funds.

 

© Copyright 2015, Sheila Smelt & Associates Inc. All Rights Reserved.

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