credit after bankruptcy

Steps to Get Credit After Bankruptcy

Often when we meet with people the question comes up about how their credit score will be impacted. A justifiable concern. If you are in a position where you are missing payments, or had a vehicle repossessed, your credit score has already been roughed up.

Choosing the government approved option of a Consumer Proposal or bankruptcy filing will also negatively impact your credit rating. However, afterwards, it will start to rise. How soon will you have a good enough credit score to get a loan? As with so many financial questions, the answer is: it depends. There are several steps you can take to help you get credit after filing for bankruptcy.

If you live along the west coast of BC, you are a fortunate person. Many people work their whole lives in order to be able to move here. One thing that any true west coaster is familiar with are the numerous rivers that drain into the Pacific Ocean. You could be familiar with the Tsolum in Courtenay, the Skeena in Terrace, the Nimpkish in Port McNeill, Cook Creek in Sechelt, or the Campbell River in….well, Campbell River. You will also be familiar with the various conditions that make rivers go up and make them go down. A fluid situation you might say.

A river is much like a credit score in that both can rise or fall depending on conditions that are impacting them. There are things that you can do that help your credit score rise. Think of them like small creeks or streams that are feeding into the main river. If you can get multiple small tributaries flowing into the main river, the river is going to rise. Let’s take a closer look at what is in your power to do:

How to Improve Your Credit Score After Bankruptcy

1. Get your absolute discharge from bankruptcy or certificate of full performance of a Consumer Proposal. This should be your main focus when you have filed for bankruptcy and is normally scheduled to happen automatically after a period of time once you have complied with your duties. Stay in touch with your Licensed Insolvency Trustee (LIT). Once you have obtained your discharge, your LIT will report this to the Federal Government. The credit bureaus will, in turn, pick up this information from them. Without your discharge it is more difficult to obtain a loan in the future.

2. Check your credit report. Once you have received your discharge, the Office of the Superintendent of Bankruptcy will update TransUnion and Equifax which are credit bureaus. It is not uncommon to see errors on credit reports so check to see if yours is clean. Currently, due to the pandemic, you can get your credit report for free by going to their websites and following the prompts. If you find an error on the credit report, take steps to correct it. It is very difficult to reach them by phone. We would recommend either faxing them or using their online dispute option. A clean credit report will help you obtain a loan in the future.

3. Pay your bills on time. This is more significant than you might think. This would apply to any bill that you have such as telephone, other utilities, or a car loan that you have maintained.

4. Apply for a small amount of credit. This could happen is a couple of different ways:

  • Apply for a new credit card, whether that is secured by a down payment or not. We suggest that you put a charge on it for something like groceries or fuel, wait for the statement to come to you, and then pay it off in full.
  • Get a cell phone on a contract. By making payments on time and honoring that contract your credit score will improve
  • Ask your financial institution for a small RSP loan. You may want to wait until you have been discharged to do this so that you don’t lose the tax refund to your bankruptcy. Instead, when you get your tax refund, apply it directly to the RSP loan. Aim to finish paying off the rest of the RSP loan within a year. At that point, you will have an asset in your RSP and a loan that you have successfully paid off.

Pro tips: avoid applying for credit too many times. Multiple credit applications can actually decrease your credit rating. Limit how often you apply. It is also important to not use more than 75% of your available credit.

The Most Important Step: Save, Save, Save.

Taking these steps are all within your power to do and will help your credit score rise. However, there is another very important thing to do in order to help you qualify for a loan and that would be to save some money.

The financial institutions that we have spoken with have advised that it is a huge plus from their perspective when they see someone that has managed to build up some savings prior to applying for a loan. Building up some savings is an indication of several good financial qualities:

  1. It shows that you are able to live within your means such that your income is more than your expenses.
  2. It shows that you have discipline.
  3. It shows that you are motivated to improve your finances

Going into any loan application with a downpayment should help you not only qualify for the loan but also obtain a loan at a lower interest rate.

Negotiating Interests Rates

Speaking of interest rates, we strongly recommend that you understand what interest rate you will be paying on any new loan. Interest rates can have a large range from low to high and you want to avoid going with a loan that has a high interest rate. The poor soul that gets a loan with a 30% interest rate will likely never pay it off. You are in control of this situation. Be prepared to negotiate the interest rate and walk away if it is too high for your liking.

Your Financial Fresh Start

Using the government approved process of bankruptcy or filing a Consumer Proposal is a very effective way to reset your finances. They are designed as a way for the honest but unfortunate person to get a fresh start. Life will go on and credit will be available in the future. You can help your credit score rise sooner rather than later by taking the steps above.

We would be pleased to discuss the specifics of your situation and your options. Take advantage of our free, confidential, no hassle initial assessment by contacting our office for an appointment. These can be done either by phone or in person. By making that decision to reach out to us you are more than halfway there to a brighter financial future. Go ahead, you’ll be glad you did!

Derek L. Chase, CPA, CA, LIT

Being able to offer debt help assistance to individuals and corporations on a more intimate basis was a driving force in completing a “second CPA” by becoming licensed by the Federal Government as a Licensed Insolvency Trustee (previously Trustee in Bankruptcy) in 1997. It is extremely satisfying to be able to witness lives change for the positive due to a restructuring of financial affairs.