By Julie Jaggernath & Monika Ritchie
Are you wondering how to rebuild your credit rating after you’ve been bankrupt? While the thought of using credit again might scare you because you don’t want to end up in debt again, approaching your next steps carefully will help you stay in control. Here are some tips to help improve your credit report as quickly as possible.
Before You Can Rebuild Credit, Make Sure You’ve Been Discharged
Before you can rebuild your credit, you must have been discharged from bankruptcy. This is the official completion of your filing. Your licensed insolvency trustee (LIT), also known as your bankruptcy trustee, will have provided you with a discharge document or certificate – this confirms that you’ve fulfilled all the requirements in Canada to obtain your discharge.
Simply not hearing anything about your case doesn’t mean you’ve been discharged. Contact your trustee if you’re unsure of where you stand, or the Office of the Superintendent of Bankruptcy (OSB) Canada for more detailed information about the discharge process.
Keep your bankruptcy and discharge documents in a safe place. You might need to show them when you apply for new credit, search for a job, or rent a new home. They will also be essential if you need to prove the steps you took to resolve your debt problems.
Tips to Rebuild Your Credit Report and Score
Although first-time bankruptcies stay on your credit report for 6-7 years after you’ve been discharged, you can still work on rebuilding your credit in the meantime. Keep in mind that there are no shortcuts to fixing poor credit – beware of scams that promise to “repair” your credit fast. To move towards a better financial future, take small but sure steps such as:
Living within Your Budget
A budget is a plan for making sure your expenses (the money you spend) don’t go over your income (the money you earn). Creating a budget and sticking to it will keep you away from debt and safe from bankruptcy. Many people have trouble with the “sticking to it” part because they’re not sure what they actually spend. That’s why tracking your expenses is so important. Record everything you buy so that at the end of the month, you know exactly how much lighter your wallet got – and why.
Applying for Credit You Can Use Wisely
It’s normal to feel scared about getting a new credit card, especially if credit cards were what got you into debt trouble. But there are other forms of credit that can also help rebuild your rating. Here are 2 tips that might help:
Cell Phone/Internet Contract: Like credit cards, payments for cell phone and some internet contracts are put on your credit report (check how you’re doing if you’re not sure what’s being reported to the credit bureau companies). Unlike credit cards, you know exactly how much these cost every month. Just be sure to never go over your usage caps and avoid paying for roaming and other extras. Contact your service provider if you’re not sure how to block automatic overages.
It’s also a good idea to shop around for not just the cheapest plans, but the cheapest plans that fit your needs. A $40 plan is pointless if you pay $50 in overage charges every month, just as an $80 plan is overkill if you only need half the speed and data. It can be worth going for a lesser cost and only topping up the odd time as you need it.
Secured Credit Card: Before using a secured credit card, you have to first give a cash deposit that covers its whole credit limit. If you ever become unable to make payments, you’ll lose the deposit and the card.
This makes secured cards safer and easier to get than normal credit cards, but remember that they’re still credit cards. Set up pre-authorized payments for regular expenses on the secured card, pay on time once the bill arrives, and don’t carry the card with you if you’re worried about spending impulsively. To find and compare secured credit cards, use this credit card search tool and click “Yes” on filter #11.
Building an Emergency Fund
Saving money doesn’t directly improve your credit report but is an important part of successfully rebuilding your credit rating. That’s because an emergency fund guards against future debt. After all, if you don’t have savings for emergencies, then you’ll be forced to borrow money when something happens. This puts you back into debt and could lead to troubles with repayment.
To avoid this problem, make saving a priority and get started right away. Think you don’t have enough money to do it? Even $10 per pay cheque will get you into the habit of putting money away, and as your situation improves, you can slowly increase that amount.
Check Your Own Credit Report to See How You’re Doing
While your credit report isn’t something you should obsess over, it’s good to check how you’re doing once in a while. You can get a free credit report every year from both TransUnion and Equifax, Canada’s two national credit bureaus. It’s important to get your credit report from both companies to check for accuracy and suspicious activity. If you do see something that shouldn’t be there, follow the instructions for correcting errors that comes with each report. There’s a difference between your credit report and your credit score, but don’t pay to see your score because it changes often. If your report is fine, your score will be too.
What to Do When Rebuilding Credit After Bankruptcy Feels Too Overwhelming
Using the skills you learned during the bankruptcy process to budget and plan will help you rebuild your credit rating successfully. Bankruptcy is sometimes the best choice for dealing with debt, but living without credit long-term is a challenge. If you have questions or need guidance, an accredited debt and credit counsellor at a non-profit credit counselling organization would be happy to help. If you’re still considering bankruptcy, they can talk to you about the process, its pros and cons, and other options that you might not have considered. They’re happy to help you identify realistic strategies to strengthen your finances and work towards a stable financial future.