This anonymous short question recently came through my inbox, and at first, I wasn’t going to answer it, because for starters, it does not a short answer (far from it!), and secondly, it’s all covered in great detail in this blog already. Here’s what the question said:
How do you rebuild credit & which banks will take a chance on you after you have been discharged?
Simple enough question. I’m going to guess that this person either landed on this website and did not read through it to find the answers. Or he/she started to look through but got overwhelmed. Looking back on this blog, I’ve been posting on average one article a month for almost two years, so that’s around 40 great articles. Each one is about something different, yet relevant to people in Canada looking to get on with their lives after bankruptcy. Some articles are more relevant than others, while some deal with very specific situations. Not to mention, I can be a bit wordy. But I like to think of it as being detail oriented. 😉
So… I will try to do the impossible… be brief! OK, here goes:
- As soon as you have been discharged from your bankruptcy, immediately get copies of your credit reports from Equifax Canada and TransUnion Canada. Check for errors on your credit reports (and there most likely will be errors). Send in proof of the correct information. Ask for unverifiable information to be removed. Send in a copy of your Certificate of Discharge, since the Trustee does not do this. Until all errors have been corrected, keep obtaining your credit reports once a month. After that, it’s up to you how often you get them. But at least once or twice a year.
- Start to establish NEW credit. The sooner the better. Lenders who are willing to work with you will want to see at least 1 to 2 years of new credit established after your bankruptcy discharge. Get a Peoples Trust Secured MasterCard and a Home Trust Secured Visa (not available in Quebec). They each require a minimum of a $500 deposit, so start saving up if you have to! Try to send in $1000 each, but if not, open with $500 and work up to $1000 (more realistic, and it will help your debt ratio once you charge something). Get both cards if possible, and use them (don’t max them out though), so you have two companies reporting to your credit report. This will help re-establish your credit and boost your credit score.
- Most, if not all, mainstream banks won’t extend ANY credit to you with a bankruptcy still appearing on your credit report, so don’t even bother. Especially if the bankruptcy is recent. Applying for credit will lower your score, appear on your credit report and result in frustration. As I recall, TD Canada Trust might issue a secured Visa card 3 years after your bankruptcy has been discharged, but that might have changed since I inquired in 2009-2010.
- Pay all of your bills early. Not just on time, but early. As soon as you get the bill. But wait until you get the bill, especially with secured credit cards. Otherwise it will always show a zero balance and will look like you’re not using them. Do not pay anything late. EVER! One late payment reported to your credit report – even late by 1 day – will hurt you more than your non-bankrupt friends.
- Do not apply for any credit unless you are 100% sure you will be approved. Don’t believe the first answer you get either. Many well meaning store and bank employees unknowingly give out wrong information, or base it on opinion. You probably won’t get any credit (besides secured credit cards) in the first year or two after bankruptcy anyways. You need to be patient. There are those sub prime lender and last chance used car lots that finance everyone. Trust me, those look bad on your credit report, will hurt chances of getting future mainstream credit and they will charge you outrageous fees and interest rates. Avoid these unless you are desperate and have nowhere else to turn to.
- Do not use a cosigner. It will not help you rebuild your credit. Future lenders will also expect you to get a cosigner. The older you are, the worse it looks, too. Not to mention it will create bad feelings if/when you miss a payment or have a big argument. Just watch a few episodes of Judge Judy or any courtroom reality TV show. And later on, once you have re-established your credit, do not be a co-signer for anyone either. If you must rent a place, avoid corporations. They will do a credit check and automatically turn you down if there’s a bankruptcy showing on your credit report. Rent from a private investor that does not pull a credit report. You could get a condo, main floor of a house, basement apartment, etc. Or move before you file for bankruptcy and then stay put for a while.
- The worst thing is to do nothing. Work on re-establishing your credit. Sure you’ll have new credit with a bankruptcy on your credit report (thus greatly limiting your choices). But it’s better to start now and in 6 years, when your bankruptcy falls off your credit reports, you’ll have a good credit rating! Better than doing nothing, and in 6 years starting from scratch to build up credit. Having no credit (or no recent credit) is almost as bad as having poor credit. That’s why teenagers, young adults and new residents to Canada have a hard time getting credit – no track record to look back on.
OK, that’s the general gist of this blog in a nutshell. Think of it as the Top 7 Tips to getting your life and your credit back on track after bankruptcy in Canada. However, I strongly suggest you take the time to read through the articles on this blog. You will get much more detail, and information on different subjects, unique situations and real life stories. I know there’s a lot to read. If you’re really serious about this, find a half hour or an hour once a week to get through all of the articles – or at least the ones that are relevant to you.
Good luck! 🙂