One of the questions we are asked the most by those who have filed bankruptcy or a consumer proposal is how to rebuild their credit score. Knowing how to rebuild your credit is particularly important if you have gone through insolvency. Your credit score plays a crucial role in your financial health, as it affects your ability to get approved for loans, credit cards, mortgages, and even influences your ability to rent a home. The important thing to note is that no matter how bad your credit score, it is always possible to rebuild with persistence and good habits. At Spergel, we understand how difficult it can be to navigate financial setbacks. That’s why we’re here to guide you through actionable steps to rebuild your credit score and regain control of your financial future.
Step 1: Review your credit reports
After you’ve completed your consumer proposal or obtained your discharge from your bankruptcy, we suggest you pull your credit reports for free from Equifax and Transunion. Check that both of your reports are error-free. If there are errors, write to the credit bureaus to make the changes. It is a good idea to check your credit report each year to see how you are performing with your different creditors. Analyzing your credit report is also a good way to understand what you are doing well, and what needs improvement. For instance, do you have a lot of missed payments? Do you have a high credit utilization rate? These factors can have a negative impact on your credit score. Put simply, your credit score will be ‘graded’ from poor to excellent, depending on the score you are given from 300 to 900. What is even more important is that your credit report will show three factors that show what you need to do to improve your credit score and how.
Step 2: Check your payment history
By reviewing your credit report, you can assess your payment history, which is the most important factor for your credit score. If you spot any missed or late payments, or any errors, you can work to fix them. In order to rebuild your credit, you need to ensure you’re making your payments on time, or at least making the minimum payment if you can’t make the full payment. If you’re not sure you can pay a bill, it’s a good idea to contact your lender to let them know. If you’re struggling to keep on top of your payments and debts, the best thing to do is speak to a Licensed Insolvency Trustee. As the only professionals in Canada legally able to file all forms of debt relief, they’re well placed to advise you on the best form of debt relief for your financial circumstances. They will help you on your way to a fresh financial future, whether or not you have filed bankruptcy or a consumer proposal. It’s also a good idea to subscribe to digital alerts from your financial institution when the credit available on your card dips below a certain threshold to help you better manage your day-to-day finances.
Step 3: Rebuild your credit with a secured credit card
With poor credit, it can be difficult to convince lenders and creditors that you are trustworthy. Therefore, applying for a credit card can be an extra challenge. The best step when attempting to rebuild your credit is to take out a secured credit card to build a consistent payment history. Secured credit cards require you to put down an initial security deposit that is equal to or potentially more than your credit card limit. It’s a safe way for lenders to give you money that they know they will receive back. Repaying at least the minimum balance on time is the best example of how to rebuild your credit. After around 6 months to 1 year of making your payments in full and sticking to your balance, you might be able to upgrade to an unsecured credit card.
Step 4: Watch your credit utilization ratio
A credit utilization ratio is the proportion of credit you use from the total credit available to you. In order to rebuild your credit, it is best to not exceed more than 30%. Anything beyond this ratio, and your credit score may begin to drop. This rule generally applies to each financial credit product that you have. Should you continually exceed this ratio, creditors and lenders may not want to risk lending you any money. If, however, you are able to consistently pay off your credit card bills on time, it will show that you can handle your credit with responsibility. If you are struggling with credit card debt, the team at Spergel can offer advice and credit counselling to help rebuild your credit report.
Step 5: Limit your credit inquiries
Although it can be all too tempting to gain credit immediately after bankruptcy or a consumer proposal, it is important to be patient and ensure the process is slow and steady. This is because each and every time you request new credit, your credit report will be pulled (also known as a credit inquiry or credit check). Creditors are able to see each time your credit report is pulled, and may be alarmed if this is a regular occurrence. This is because it can appear that you’re urgently after credit, or trying to live beyond your means. It is best, therefore, to be patient with your credit inquiries, to be selective, and only apply for credit when you really need it. Minimizing the banks you request credit products from is also a good idea in order to build trust.
Step 6: Diversify your credit
Your credit score may actually be lower if you only have a single type of credit product, say a credit card. When it comes to rebuilding your credit, it can be better to have a range of credit products, like a credit card, a car loan, and a mortgage. This can help to improve your score – but most importantly, ensure you can pay back any money you borrow in full. Otherwise, it can have the reverse effect on your credit score.
Step 7: Develop good financial habits
A key method for rebuilding your credit score is to adopt smart saving and spending habits. There are a few simple steps we recommend taking to develop better money management skills:
- Create a budget. A budget that accurately reflects your income and spending can help you to better understand how to live within your means. It can also help you to prioritize your spending and channel your money towards the things in life that mean the most to you.
- Set up reminders. In order to stay on top of your bills, set up some money reminders and a list of all of your bill payments and dates. This will help you to remember when you need to make payments so you can avoid missing or making late payments.
- Learn how to live frugally. Many individuals resist learning to live frugally, thinking it will put an end to all their fun, but this isn’t the case. It’s all about making sensible choices so that you can live comfortably, and most importantly, within your means. It will help you to repay your debt more quickly so that you can make the most of life later on.
Step 8: Speak to a Licensed Insolvency Trustee
Rebuilding your credit can be a difficult task and it takes time and patience. It involves being strict with budgets and repayments, as well as catching up on any missed or late payments. It can often be overwhelming and difficult to know where to start. If you need support, it is best to speak to an experienced Licensed Insolvency Trustee. As they are the only professionals in Canada legally able to administer a bankruptcy or a consumer proposal, they can offer the most appropriate advice for rebuilding your credit. At Spergel, our Licensed Insolvency Trustees have been helping Canadians to gain debt relief for over 35 years.
How to rebuild your credit score: FAQs
Here are some of the most commonly asked questions we receive when it comes to rebuilding your credit score:
How do I build my credit score fast?
To build your credit score quickly, focus on paying all bills on time, as payment history is the biggest factor in your score. Reduce your credit card balances to keep your credit utilization ratio below 30%. If possible, consider a secured credit card and make small, manageable purchases, paying off the balance in full each month. Avoid applying for too much new credit, and address any errors on your credit report promptly.
How long does it take to rebuild credit in Canada?
Rebuilding credit in Canada can take several months to a few years, depending on your financial situation. If you’re consistently paying bills on time, reducing debt, and managing credit responsibly, you may start seeing improvements within six months to a year. However, major financial setbacks like missed payments, defaults, or bankruptcy may take longer – up to seven years for these items to fully fall off your credit report.
How to get a 700 credit score in 30 days?
Achieving a 700 credit score in 30 days is challenging, but you can make progress by paying all bills on time, lowering your credit card balances to reduce your credit utilization ratio, and addressing any errors on your credit report. If you have outstanding debts, focus on paying them down or negotiating with creditors. Adding positive payment history through a secured credit card or authorized user account may also help, but significant improvements usually take more time than a month.
If you want to learn more on how to rebuild your credit, book a free consultation with Spergel. Our Licensed Insolvency Trustees have been helping Canadians to rebuild their credit scores after bankruptcy or consumer proposals for over thirty years. You will be assigned your very own trustee to walk you through the process. Reach out today – you owe it to yourself.