Being heavily in debt sometimes ends up in a consumer filing or bankruptcy. How do you rebuild your credit after an accident?
A bad credit report has many ramifications, and ramifications of untold magnitude: employment, insurance, interest rates on loans and margins, etc.
But most importantly, our credit is penalized as lenders and financial institutions tend to trust us less.
That’s why finding solutions to your debts is better than sweeping everything under the rug.
If we choose consumer proposition or bankruptcy to get out of it, are there ways to rebuild our credit scores?
Fortunately yes, according to Pierre Fortin, qualified liquidator and President of Jean Fortin et Associés.
1. VERIFY YOUR FILE
First step: 30 days after the end of the insolvency or the consumer application, obtain your credit report from the two credit agencies (Equifax and TransUnion).
This process is free and can be done from their website. For more information and guidance, visit this Financial Consumer Agency of Canada page.
“It’s important to access your file to verify that any debts that should be included in the bankruptcy or proposal are marked ‘Included in bankruptcy (or proposal)’.” Thus, they will no longer appear as unpaid debts, ”recommends Pierre Fortin, since sometimes mistakes occur.
If an inaccuracy has crept into your file, you can have it corrected by sending Schufa a correction form, which you can find on their site. Be careful because one mistake can seal your credit report without your knowledge.
“Very often, once the situation has been corrected, the score can increase by more than 50 points,” says Pierre Fortin.
2. PROPERLY MANAGE THE CREDIT YOU STILL HAVE
Second step: Prove to your creditors that you are able to handle your remaining balance.
“During bankruptcy it is possible to keep certain loans ‘guaranteed’ if you are up to date with payments, for example a car loan. A consumer proposal may allow you to keep your credit card. These sources of credit will continue to appear on your file, and when payments are on time and card usage is appropriate, it demonstrates your ability to use credit responsibly,” says the trustee.
The mortgage also appears on our credit file, but it won’t play in our favor even if we make the payments. On the other hand, if we default on payment, this will affect our score.
3. SAVE TO REBUILD TRUST
Third step: After your release, gradually regain the trust of your financial institution. How it goes ? Pierre Fortin recommends saving, for example in a savings account, a TFSA or an RRSP. This is the best way to regain credibility and show you know how to discipline.
4. HAVE PATIENCE BEFORE REQUESTING A CREDIT
Step Four: Do not rush and be patient before applying for a loan again. A year after bankruptcy or filing and after you’ve saved up an amount, ask your bank for a line of credit.
“It’s a good tool to have, and it doesn’t cost anything if you don’t use it,” says Pierre Fortin. One could also apply for a credit card or loan, but only if necessary.
The first access to credit is the most difficult to get and also the most important. For this reason, you should not rush and consult your financial institution’s financial advisor to find out if there is a chance that your application will be accepted. Because if we’re denied, it’ll appear on our record for three years, which hurts you. So we have to be careful!
Final advice: don’t be fooled by the promises of companies offering to rebuild your credit. This is not only unnecessary, but also expensive.
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