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There’s no doubt about it. Filing a consumer proposal or bankruptcy will affect your credit rating—and not necessarily in a good way. Both events will be noted on your credit report: a first bankruptcy will remain on your file for about seven years (assuming you’re discharged after nine months), and a consumer proposal will remain for three years after you complete it.
Having a poor credit rating for that length of time may seem an insurmountable problem, but all is not lost. With a bit of effort and good financial management, you can repair and rebuild it. Here’s how:
1. Pay your bills on time. This is one step that you can take even while you’re still in bankruptcy or paying your consumer proposal. Timely payments will reflect a positive change in your financial behavior that will be reflected on your credit report.
2. About four to six months after you complete your bankruptcy/consumer proposal, request a free copy of your credit report from both Equifax Canada and Transunion Canada (subscribing to their paid online service isn’t necessary). Because the companies work independently of one another, it’s important to review both reports.
When you receive your reports, check them for accuracy. If you notice any errors, contact either Equifax or Transunion (whichever one made the error) directly. They will investigate your complaint and make any necessary corrections.
It’s a good idea to review your report from each agency once a year to make sure the information is correct and up to date.
3. Consider applying for a secured credit card. Unlike a prepaid credit card, which works much like a debit card by allowing you to use the card only up to the amount you’ve deposited in the card account, a secured credit card operates as a true credit card, allowing you to borrow the funds you use for your purchases. The only catch is that you must secure the card with a cash deposit made to the bank. The bank then holds this deposit for use in case you fail to make your payments. Your credit limit is usually equal to the amount of your security deposit.
A word of caution: Only apply for one secured credit card (multiple applications will show up on your credit record and could potentially lower your rating), and only if you are absolutely certain that you can properly manage it. This includes making your payments on time all the time, and paying off the full balance every month. Remember that you are trying to establish healthy financial patterns and not backslide into repeating the ones that resulted in your difficulties in the first place. This will provide a history of credit purchases and repayments.
4. Open a savings account and make regular deposits, even if you can only afford to set aside a few dollars each payday. While savings accounts aren’t reported on your credit record (and therefore don’t have a direct impact on your rating), they do serve other important roles in rebuilding your overall credit. First, you’ll be establishing a regular saving pattern that is critical to healthy overall finances; and second, the savings can then be used as an emergency or contingency fund if an unexpected expense comes up.
5. Be patient. Remember you’re not just simply rebuilding your credit score, you’re rebuilding your credit history, and there’s no quick fix for that. It’s going to take time to prove that your financial management skills have improved, and to regain the trust of creditors. But it will absolutely be worth the effort.
More questions? For more information on how a consumer proposal and/or bankruptcy might affect your credit rating—or to find out if one of those options is right for you—call us today to schedule a free, no obligation consultation: in Ottawa call 613-237-5555; out of town, call toll-free 1-800-517-9926.