29/10/2018How to Rebuild Your Credit After a Consumer Proposal or Bankruptcy
While bankruptcy and consumer proposals can release you from the pressure and worry of creditors and debt, your journey is not over. Now that your papers are filed, you need to start rebuilding your credit. This is indeed one of the largest concerns for people under insolvency proceedings.
While your first bankruptcy will remain on your credit report for seven years, and a consumer proposal for three, here are five things you can do in the meantime to help speed up the process.
1. Look at your credit report
The first step in rebuilding your credit is to make sure that the credit bureaus are reporting correctly. This is not something the Licensed Insolvency Trustee can do for you, so we strongly urge debtors to take this step as errors are common with the creditors under these circumstances.
You can request a free copy of your credit report from either Equifax or Transunion, the two major credit bureaus in Canada. We recommend requesting a report from both bureaus to ensure all is in order.
Your credit report should clearly indicate the kind of agreement you made—bankruptcy or consumer proposal—and the dates they went into effect. Double check that the discharge date of your bankruptcy or full performance date of your consumer proposal is clearly outlined, as errors like this can slow the process of rebuilding your credit.
You should also ensure your credit rating is correct. With a bankruptcy, you should see an R9 status, and it should indicate that the debt was included in the bankruptcy. The R9 status will remain on your report for 6 years if it’s your first time filing for bankruptcy. If you’ve filed for bankruptcy for two or more times, it will show for up 14 years. Anything you do to rebuild your credit during the time after your discharge will reflect on your report.
Consumer Proposals should show an R7 status for 3 years after full performance and should show that it was included in the proposal.
If you notice any errors, report them directly to the credit bureaus as soon as possible as errors can slow down the credit repair process.
2. Make your agreed-upon payments on time
If you filed a consumer proposal, be sure to make your payments on time. If you miss three payments, your proposal is in default and your creditors can take legal action against you. If you are unable to make payments, you may be able to file an amended proposal to avoid default.
3. Get a secured credit card
Once you have received your discharge or your certificate of full performance you are now eligible to begin getting credit again. Although it may seem counter-intuitive to get a credit card after having filed a bankruptcy or consumer proposal, keep in mind that no credit is also bad credit. Having no credit at all will damage your credit score and so it is important to get a secured credit card.
What is a secured credit card?
A secured credit card is a credit line guaranteed by a previous deposit. For example, to have $1,000 of credit, you would have to deposit $1,000 with the card’s bank. Basically, you provide collateral for your credit, so that if you miss a payment, the bank can take some money from the deposit to pay your balance. But since the bank reports to a credit reporting bureau, any payments you make on time will improve your report.
As with any other credit line, you should read the fine print. Not all secured credit cards are the same and can have high interest rates and annual fees.
Lastly, know that for each credit check by a lender there is a hit to your credit score, so be smart and do some research before allowing the lender to do a credit check. Be honest about your past, as they will find out once they pull a report. Use the credit card, and pay it when the bill comes in. If you aren’t using your credit, it is also not helping your score.
4. Get an RRSP loan
If you haven’t been making your full contribution to your Registered Retirement Savings Plan (RRSP), you can take out a bank loan to make up the difference. Banks are usually more willing to extend RRSP loans. Not only will you increase your retirement savings, but making payments on the loan will improve your credit.
5. Make sure to stay within your budget
None of this will do any good if you aren’t staying within a budget and are instead running up credit card debt again. The habits you created before you filed for bankruptcy or a consumer proposal will be hard to break, but making new habits and consistently paying your bills every month will make the biggest difference in your credit report.
The road to rebuilding your credit after a consumer proposal or bankruptcy can be a confusing one for many people, but trying just one of these five tactics will help your credit report in the long run. Imagine what would happen if you tried several!
As always, if you have questions, be sure to ask your estate manager or Trustee.