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Credit repair after bankruptcy

Posted on 15 March 2023

Written by Ashvin Sharma

If you have filed bankruptcy or are nearing discharge from bankruptcy, you may well be wondering about credit repair in Canada. Once your unsecured debts have been cleared, you will likely want to understand how to rebuild your credit score. It can be difficult when poor credit limits your financial options, especially when you are looking to get back on track. Credit repair is a key part of beginning your fresh financial future, and although not a fast or simple process, it is achievable. In this article, we explore how credit repair is possible, and the best – and quickest – ways to achieve it. Here are eight simple steps to follow so you can get on your way to enjoying life after bankruptcy.

Complete your bankruptcy as quickly as possible

If it is your first time filing bankruptcy and you do not have surplus income, you will likely be discharged from bankruptcy automatically within nine months. In order to receive your discharge from bankruptcy this quickly, you need to comply with the terms of your bankruptcy. This means making your monthly payments in full when they are due, and working with your Licensed Insolvency Trustee to report your income and attend your obligatory credit counselling sessions. The quicker you can complete your bankruptcy and become discharged, the sooner it will be removed from your credit report. For this reason, you should take your bankruptcy terms seriously and comply.

Build up some savings

In order to stand a chance of being seriously considered for credit from lenders in the future, you need to provide evidence that you can handle money once again. One of the best ways to do so is to show that you have some money saved up. It is a good idea to put the same amount of monthly repayment you were paying to your Licensed Insolvency Trustee into a savings account to begin building up a pot of money. Have an ultimate goal in mind, like saving for a downpayment on a vehicle or a property. Learn more on our tips on how to save.

Review your credit report

So that you understand the kind of credit repair that is required after bankruptcy, you should request a copy of your credit report from Canada’s two primary credit bureaus – Equifax and TransUnion. You can get a free copy of your credit report once a year. A credit report is a detailed record of all your borrowing history, from credit cards to loans, listing out any credit applications you have made, repayments, and any bankruptcies you have filed. This is used by lenders to assess whether or not to give credit to a borrower or not. Credit repair involves cleaning up negative information on your credit report, like errors, delinquent accounts, past-due accounts, and maxed-out accounts. You should review it for any potential errors, and check on any entries that you do not understand. If you find anything you are unsure of, you should contact the credit bureau and let them know so that they can rectify it.

Dispute inaccurate information

If you spot errors on your credit report, this is the best place to start. Any incomplete or inaccurate information can be removed or changed relatively simply. Check particularly for any debt you have paid off already, any accounts you have closed that are reported as open, and incorrect credit limits. Disputes can be submitted online, via phone, or mail. Mail is sometimes considered the best option as you can provide solid evidence to support your case. When disputing, ensure to send one letter per dispute for a faster resolution, and request return receipts. You should document all the errors you dispute, and state your case as simply as you can. You can dispute as many items as you wish, although we recommend keeping it to five or less each month.

Get current on overdue accounts

Late and missed payments will cause havoc on your credit report. Immediately after a payment due date, your credit score will not be affected – it is usually reported to the credit bureaus after 30 days, and your credit score may drop at this point. After 60 days if there is still no payment made, your credit will be heavily impacted and you will receive the maximum penalty rate. After this point, collection calls will spiral and after 180 days, your account will; be charged off. This is whereby your lender marks your debt as unlikely to be collected, and your credit score will be severely affected. For this reason, you should try your very best to avoid charge-offs. You should contact your creditors to do everything you can to get your accounts current – they may work with you to do so.

Adjust your credit utilization rate

By working as hard as you can to make your accounts current, most of the damage on your credit score can get on the right track. Another key component is your credit utilization rate. A credit utilization ratio is the total amount of credit you are using, versus the credit limit you have. If your credit is bad, the chance is your credit utilization ratio is high, which has a negative impact on your credit score. In order to improve this, you want to get a better balanced ratio by reducing the amount of credit you have. Try to pay off your credit balances where you can – an ideal ratio for each form of credit is 30%.

Get a secured credit card

A key part of credit repair is beginning to use credit responsibly once again. A secured credit card like a Home Trust VISA is designed for this purpose. You essentially use your savings to place down a deposit on a credit card, and in return you receive a credit card to use with a credit limit equal to the deposit you placed. Secured credit cards reflect on your credit report as normal credit cards and you can use it when you need.

Get a Registered Retirement Savings Plan (RRSP)

An RRSP is another way to make your credit report look good. By putting some savings into an RRSP, a financial institution may lend you the same value to add as a contribution to your RRSP. The overall amount contributed can create a tax refund that is nearly sufficient to repay your loan. A repaid loan will do wonders for your credit report, and you have a RRSP for later in life.

Although credit repair after bankruptcy can take some time, it is possible to earn the trust of banks and financial institutions to be able to borrow credit again. By taking the steps above and working closely with your Licensed Insolvency Trustee, you can get there. Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel today – you owe it to yourself.

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Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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