How to Rebuild Your Financial Life & Credit Score After a Bankruptcy or Consumer Proposal
When you’ve just completed a Consumer Proposal or have received your discharge from Bankruptcy, it can feel like a daunting task to start rebuilding your financial life. However, it’s important to understand that it’s easier than you might think. This article will guide you step by step on how to rebuild your financial life after a Bankruptcy or Consumer Proposal.
Understanding Credit Reporting Agencies
In Canada, the two significant credit reporting agencies are Equifax and TransUnion. These agencies oversee and maintain your credit profile, including reporting Consumer Proposals and bankruptcies. Typically, Consumer Proposals remain on your credit profile for three years from the date of full performance, while bankruptcies remain for six years from the discharge date for first-time bankrupts.
The Importance of Savings
Before you start rebuilding your credit, it’s crucial to establish a solid financial footing. Opening a savings account and making regular deposits can be a great first step. The funds you were previously allocating towards your Consumer Proposal or bankruptcy could even go towards creating an emergency fund. Having an emergency fund is essential as it allows you to manage unexpected expenses in the future without resorting to debt.
Secured Credit Cards
An excellent way to start rebuilding credit is by applying for a secured credit card. This card requires a security deposit, usually around $500, which the credit card company holds for about two years. Use the card each month for small purchases and ensure that the statement is paid in full at the end of each month.
RRSP and RRSP Loans
At some point, you might want to consider opening an RRSP account and save for retirement. Consider asking the bank for a small RRSP loan. Making on-time payments on this type of loan will also help rebuild your credit.
Avoid Credit Repair Firms
Beware of companies that promise to help you re-establish your credit for a fee. Their ability to change the information that appears in your credit file is no different than anyone else’s. Only your creditors can alter this information; therefore, you do not need to pay a third party to obtain, discuss, review, or make changes to your credit report.
Acquiring Credit After Consumer Proposal or Bankruptcy
Post your Consumer Proposal or bankruptcy, you may consider some common types of credit as you progress with your financial affairs and goals. Always ensure you fully understand and are satisfied with all the terms of borrowing before accepting credit.
Mortgages After a Consumer Proposal or Bankruptcy
Mainstream lenders may offer you a new mortgage if it has been two years since your Consumer Proposal was completed or two years since you were discharged from bankruptcy.
Vehicle Financing After a Consumer Proposal or Bankruptcy
Mainstream lenders may be able to offer you a vehicle loan or lease within one to two years of completing your Consumer Proposal or bankruptcy.
Credit Cards After a Consumer Proposal or Bankruptcy
Standard unsecured credit cards with mainstream lenders may be available within one year of your Consumer Proposal or bankruptcy being finished.
An Action Plan for Rebuilding Your Credit
Set the Stage
Complete the terms of your Consumer Proposal consolidation to receive your Certificate of Full Performance; or in bankruptcy, perform the duties required to get a Certificate of Discharge. These are an official “exit” and fully release you from eligible debts – you are now debt-free!
Ensure Accuracy
It’s common to find errors on your credit history reports, which can damage your credit rating. Visit our Clients Resources page to access forms for credit history and investigation requests so you can review your reports and if necessary, have errors corrected.
Get New Credit
A simple way to get new credit is to obtain a secured credit card with a low limit. Demonstrate responsible use of this card by paying off the balance in full before each payment due date.
Be a Dependable Customer
All your bills must be paid on time, every time, with no exceptions. Even a missed cellphone bill can have a negative credit rating impact.
Spend Less than you Earn
A key factor in demonstrating credit worthiness is to spend well below your income amount.
Best Way to Become Debt-Free
Sands & Associates can help you compare the key differences between Consumer Proposals and personal bankruptcy, as well as other debt management strategies.
Life After a Consumer Proposal
Life after a consumer proposal doesn’t mean living forever without a credit card or a car loan. It does, however, mean gaining a fresh start free from overwhelming debt payments.
Steps to Take After Your Consumer Proposal is Paid Off
Here are some tips on what you should do after a consumer proposal.
- Keep a copy of your Certificate of Full Performance
- One month after your proposal is completed, obtain a free copy of your credit report
- Only take on as much credit as you can afford to repay
- Pay your bills on time
- Credit cards make the biggest impact on your credit rating
- Don’t apply for too many credit cards at once
- Pay your credit cards off more than once a month
- Focus on your financial health, not your credit score
Surviving a Consumer Proposal is Possible
If you struggle with debt, you may need a debt solution like a consumer proposal. As you can see, there is life after a consumer proposal.
In conclusion, rebuilding your financial life after a bankruptcy or consumer proposal is a process that requires patience and discipline. By following the steps outlined above, you’ll be well on your way to financial recovery. Remember, the key to successful financial recovery is to not only focus on rebuilding your credit score but also to establish healthy financial habits that will prevent you from falling into debt in the future.
