Rebuilding Credit after Bankruptcy
“Will I ever be able to obtain credit again after bankruptcy?” This is the most common concern my clients have when they are faced with financial hardship. The short answer is yes, you can rebuild your credit, but it does take time and patience.
Why is credit important? Credit allows you to borrow money from financial lenders to make large purchases, like your home or vehicle.
You can establish credit throughout your life by keeping bank accounts in good standing, making payments on credit cards on time and by repaying your loans.
A credit score, also known as a beacon score, is the key to obtaining credit. A credit score over 650 is considered healthy. Credit grantors lend money and set interest rates based on your credit score, so the higher your score, the less interest you pay.
After bankruptcy, your credit score will be very low or you will have no score at all. This means that you have to re-establish your credit.
If you’re recovering from bankruptcy, here are the steps you need to take to rebuild your credit:
1. File a copy of your Certificate of Discharge.
Your Certificate of Discharge (release from bankruptcy) must be filed with the two main creditor bureaus – Equifax and Trans Union Canada. You must request that they update your record with this information.
2. Request a copy of your credit report.
Equifax and Trans Union Canada are both credit reporting agencies. They keep a record of your credit activity. You should request a copy of your credit report to make sure that everything in your bankruptcy is updated correctly on your credit report.
3. Establish credit.
The world of credit has changed and now creditors are looking for re-established credit with a total combined limit of $5,000 after bankruptcy. There are two types of credit after bankruptcy: revolving (credit cards) and installment (personal loans).
One of the easiest ways to re-establish credit is to obtain a secured credit card, which is a credit card that is backed by a security deposit using your funds.
Every time you use the credit card, it is reported on your credit report which will begin the process of re-building your credit. It is recommended that the secured credit card be used only to purchase items within your budget. All items should be paid for immediately- do not carry a balance. The purpose of obtaining the card is to reestablish your credit and not spend beyond your means.
The second type of credit is called installment credit, which is obtained through a loan with set installment payments.
4. Have patience. If you experienced financial hardship, it’s easy to become frustrated. Understand that the process to re-establish credit takes time. Have patience with yourself. Use this time to get your finances in order and build positive habits that will keep your financial health on track for the future.
Credit is a privilege and needs to be nurtured with care, skill and due diligence.
If you have any questions on this topic or debt relief, I invite you to email me at firstname.lastname@example.org.
For more than 30 years, Mackenzie, Gillis, Macdougal Inc., Licensed Insolvency Trustee, operating as MGM Trustee, has helped thousands of people take control of their finances. With multiple locations throughout Cape Breton, our compassionate, knowledgeable and experienced team is here for you.