How does Bankruptcy Affect my Credit Rating?

How does Bankruptcy Affect my Credit Rating

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How does Bankruptcy Affect my Credit Rating?

On the face of it a bankruptcy has a negative effect on your credit rating, since it will cause an R9 on your credit report, the worst score possible.

The fact of your bankruptcy will also remain on your credit report for 6 years after your discharge.

However, delving a little more deeply you will see that a bankruptcy will actually improve your credit rating. How is that possible?

How does Bankruptcy Affect my Credit Rating?

Here is how that works. Most people on the verge of bankruptcy will have a very poor credit rating so a bankruptcy will not make it worse. In fact, when you are out of bankruptcy (discharged), usually in nine months, you are actually a better credit risk to lenders, since you have no debt.

In fact, when you are out of bankruptcy (discharged), usually in nine months, you are actually a better credit risk to lenders, since you have no debt.

You are not going to get credit immediately, however with a little work and diligence you can gain a very good credit rating in as little as two years.

How does Bankruptcy Affect my Credit Rating?  Steps to Regaining a Very Good Credit Rating:

Step 1 – Get your discharge from bankruptcy – Follow the instructions the trustee has given you and perform all your duties so you get your discharge from bankruptcy.

Step 2 – Clean up your credit. – Check your credit report and note any errors. The Office of the Superintendent of Bankruptcy will advise the credit bureaus of the fact of your discharge.

Step 3 – Correct errors on your credit report. – It is common that there are errors on your credit report. The credit bureaus will correct any errors. They will not remove any information that is correct. Use the Equifax form, which you fill out online to correct errors.

Step 4 –Obtain new credit – To increase your credit score you need to apply for new credit and use it responsibly to show that it is possible for you to manage your credit in a responsible manner. Rebuilding your credit rating with a secured credit card is a good bet.

A Peoples Trust card will result in payment history being recorded with the credit bureaus, which will help your credit history look better over time.

Another good type of credit to get to help rebuild your credit history is a car loan.

We have a list of lenders who can provide an Auto Loan to people discharged from bankruptcy.

Step 5 – Get a Mortgage – When purchasing a home you must have a down payment of at least 5%. In order to qualify for a home mortgage you must have been discharged from your bankruptcy for 2 years + a day and have 365 days of re-established credit.

Other debt that will assist in proving to lenders that you are a good credit risk are car loans and RRSP loans.

Step 5 – Get a home mortgage – The minimum down payment is 5% with a mortgage guaranteed by CMHC. To qualify for this mortgage you must have been discharged from bankruptcy for at least two years and one day and have at least one year of re-established credit. Here is a link to CMHC lending guidelines http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm

If you have any questions about this or other aspects of insolvency you can set up a FREE consultation with our Insolvency Trustees.

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