Slow and steady wins the credit race

When it comes to rebuilding a credit rating, most financial experts urge consumers to take a long, hard look at what caused them to stumble in the first place and then carefully fix things one at a time.

“People should start slowly and cautiously when rebuilding credit,” said Robert Hunt, managing partner of Grant Thornton’s consumer insolvency business unit in Halifax. “They should really educate themselves about the types and costs of credit.”

Opening up a savings account and gradually building up to between three and six months’ worth of expenses by putting even a small amount aside every paycheque is one strategy.

“The point is that you’re making savings an important part of your plan, paying yourself first,” said Hunt. “Psychologically, it’s so important for people to see that there is money left over at the end of the month.

“It’s all about having a safety net in case you lose your job,” he said.

For Michael Sanderson, who declared bankruptcy when his video store had to close, there were a lot of tough decisions to keep things going, right down to eliminating the cost of cable TV, Internet and phone.

Taking a page from Dave Chilton’s The Wealthy Barber, Sanderson, who is paid biweekly, also made the decision to live off two paycheques per month. On the months when the pay schedule provided him a third paycheque, he put only half of it towards his household budget. The other half went straight into an emergency savings account.

In the 16 years since he filed for bankruptcy himself, Sanderson has led many workshops to help people get their finances in order.

“It always surprises me … that there’s so many people that are going through this stuff.”

All of those struggling financially, though, can take comfort that proper money management can turn things around for them and lead to an improvement in their credit score.

In Sanderson’s case, the moment he realized his bankruptcy was truly behind him came when he applied for a mortgage.

“The guy went to check my credit and he turned to me and said, ‘Are you sure you went bankrupt? Because you’ve got a pretty good credit score.”