“I lost my job; I’m working now, but I can’t get a loan.”
“I got separated, but because I co-signed my spouse’s loans and they didn’t pay, now my credit rating is bad.”
“I finished my bankruptcy, now I’d like to rebuild my credit so I can buy a new house in a year or two.”
Bad credit happens for many reasons, including job loss, marriage break up, and yes, filing bankruptcy or a consumer proposal. If you have bad credit, you may not be able to get a loan, and you may have difficulty renting an apartment or borrowing to buy a car.
Understanding Your Credit Report
Your credit report contains information about you and your past credit history. Lenders use this information to assess your overall ‘creditworthiness’. Information that appears on your credit report includes:
- personal information including your name, date of birth, current address, social insurance number, driver’s licence and employment history,
- a list of credit accounts and transactions including credit cards, retail cards, lines of credit, car loans and your mortgage,
- notes about “negative” financial transactions including bounced cheques, a history of missed payments and debts sent to collections,
- public notices including a notice that you have filed bankruptcy, a consumer proposal or a debt management plan,
- a record of any liens on your home or car,
- information about how often lenders have asked for your credit report, and frequent loan applications.
Creditors report information to the reporting agencies on a voluntary basis and each reporting service records this information according to their own practices. So exactly what appears on your report depends on your creditors and the reporting agency.
How Long Is Bankruptcy On My Credit Report?
If you file for bankruptcy or a consumer proposal, it is the Office of the Superintendent of Bankruptcy who reports the fact and date of both your filing and discharge to the reporting agency, not your trustee. In general:
- if this is your first bankruptcy, a note will remain on your credit report for six years after you are discharged. If you are eligible for discharge in nine months, your bankruptcy will remain on your credit report for slightly less than seven years.
- if you filed a consumer proposal (or debt management plan) a notice will remain on your credit report for three years after you make your final payment. If you filed a five year proposal, but finished early and completed all your payments in three years, that means the note will be on your credit report for six years in total (the three years you were making payments plus three years after).
How Can You Rebuild Your Credit After Your Bankruptcy or Proposal?
Filing bankruptcy (or a consumer proposal) is meant to be a fresh start. You are now free from your debts. This should improve your overall cash flow however it doesn’t mean you will qualify for a new loan right away. Rebuilding your credit after bankruptcy is possible, but it takes time.
Here are some steps you can take to rebuild your credit once you have received your discharge:
- Pay Your Bills On Time. This is our number one recommendation. Missed payments, habitually late payments or stopped payments will likely be reported to the credit reporting agencies. This will continue to ruin your credit and prevent you from qualifying for new borrowing.
- Monitor Your Credit Report. You should get a copy of your credit report four to six months after your discharge to ensure that all information reported there is accurate and up to date. If there are errors, contact the reporting agency and ask them to fix them. You can get a free copy of your credit report by mail by contacting one of the two Canadian credit reporting agencies: Equifax or Trans Union.
- Build Your Savings. Having savings itself does not affect your credit score, however having an adequate emergency fund can prevent you from missing payments if an unexpected event happens. You should also save an adequate down payment if you are looking for a new car loan or mortgage.
- Consider A Secured Credit Card. To start, you may need to consider a secured visa card to begin to show lenders that you can establish a good repayment history. It is not the card that gives you good credit, it is the process of using the credit on the card and paying off your balance each month. One such card includes the Home Trust Visa secured credit card. More information can be found on this Home Trust Visa page.
- Limit Your Credit Applications. It is best to only apply for one secured credit card initially. Multiple loan applications can show up on your credit report and hurt your credit score. Apply for your card only after you have saved for the required deposit. Don’t spend more on the card than the initial deposit limit. Bumping up, or passing your limit can hurt your credit too. In addition, beware of offers to increase your limit. You do not want to get in trouble with debt again.
- Use Credit Wisely. No matter what type of credit you use after your bankruptcy, use it sparingly. Be sure you can pay your balance in full as soon as soon as your statement arrives. This will help you avoid both missed payments and the high interest debt trap again.
What if you are looking to buy a home or new car and need a bigger loan?
The process of rebuilding your credit takes time however you can, gradually, increase the size and type of loan product you use to improve your overall credit score. If you are hoping to be approved for something as large as a mortgage, your lender will generally need to know that you have a proven repayment history on a minimum of $5,000 in new credit since your bankruptcy or proposal. Credit rebuilding services like the Credit Builder Plus™ program can help you build your credit for larger loans. Be sure you fully understand the program being offered. Credit products designed for individuals with ultra-low credit scores can charge high interest and up front fees.
If you think you need to file for personal bankruptcy in Ontario don’t delay. The sooner you deal with your debts, the sooner you can begin to rebuild your credit. For more information and help, locate an Ontario bankruptcy trustee in your area.