If you have filed for bankruptcy in Canada, you are aware of the financial hurdles that are sure to come your way.
First, your credit score will inevitably go up and down throughout your bankruptcy. But you don’t have to worry. You are in the driver’s seat when it comes to rebuilding your credit score for securing your financial future.
After your bankruptcy is discharged, credit repair in Canada can be achieved efficiently by following these 10 effective solutions to put your credit score in good standing.
How to Rebuild Your Credit Score in Canada After Bankruptcy
1. Request a copy of your credit score
Keep in mind; your bankruptcy will stay on your credit report from 5-10 years. This is a long time, but look at it as an opportunity to rebuild your finances steadily. The main action during this period is to request a copy of your credit score from Equifax and TransUnion. From there, you will be able to see your current credit score and make a plan of action to increase it.
In Canada, Equifax stores your credit score for up to 6 years after filing your bankruptcy discharge. Depending on which province you filed bankruptcy, TransUnion keeps it on file for 6 to 7 years. What lenders want to see during your bankruptcy is that you have developed responsible financial habits and have kept your debts out of the red.
2. Pay your bills on time
A major part of rebuilding your credit score is to pay all your bills on time. That includes car insurance, hydro, electricity, and wifi internet. Always pay your credit card minimum payments on time. Even better, if you can squeeze in a second payment during the same payment cycle on your credit cards before the due date, multiple payments help improve your credit score.
3. Sign up for a cell phone contract
During bankruptcy, signing up for a 1-2 year cellular phone contract can help improve your credit score. Each month that you pay your cell phone bill, the cellular company will send the records of your monthly payments to Equifax or TransUnion. It tells lenders that you’re paying on time and in full every month. This establishes steady financial management.
4. Get a secured credit card
Applying for a secured Visa credit card helps improve your credit score neatly. If the credit limit is $500, put down a $500 deposit. Once you are discharged from your bankruptcy, the deposit you put on the card is considered a cash deposit and automatically puts your account in good standing.
Visa will then report this positive balance to Equifax and TransUnion monthly and will increase your credit score. If you need to use the secured credit card, pay off the balance in full every month to keep your score afloat, so it doesn’t decrease.
5. Avoid NSF and overdraft fees
Always keep track of your bank account payments, especially if you set up authorized monthly payments to pay your bills. Avoid getting a negative balance, as NSF fees and overdrafts signal financial trouble and will affect your credit score.
6. Open a tax-free savings account
Opening a Tax-Free Savings Account (TFSA) is a great way to start saving money. In case of an emergency, it’s free to make withdrawals. Just be sure not to withdraw all of the funds, as the bank might close the account.
As little as $50-$100 a month will add up during your bankruptcy, and the more you contribute to it, interest grows and shows lenders that you’re serious about saving money.
7. Open an RRSP
Similar to a Tax-Free Savings Account, opening a Registered Retirement Savings Plan (RRSP) to show lenders that you’re saving money to establish your financial future. It’s beneficial to open an RRSP because the more money you contribute, even in small amounts, the lower your income tax will be.
Keep in mind, if you open your RRSP before filing for bankruptcy, any funds you contributed can be taken to pay off your debts. Open it after your file for bankruptcy, and once your bankruptcy is discharged, start making monthly payments to rebuild your credit history.
8. Spend wisely
Cost-cutting and spending wisely can come in handy when you live on a budget. Start subscribing to online discount coupons, like Groupon and LivingSocial, for activities that you can get a substantial discount on. Stick to buying ‘needs’ and skip ‘wants’.
For groceries, using coupons can save you $5 – $10 a week. You can even get cash-back on groceries from Checkout 51. Spending wisely and cutting some corners will eventually add up, leaving you with more money to pay bills or save.
9. Live debt-free
Once you get the hang of living on a budget, trimming down the use of credit cards, and contributing to a savings account, rebuilding your credit score after bankruptcy doesn’t stop there.
Even after your bankruptcy is discharged, your long-term financial goals should include living debt-free and saving money. You don’t want to accumulate more debt the second time around and file for another bankruptcy because your finances will suffer again.
After filing for bankruptcy, expect to build up your credit score. But if you follow these 10 tips outlined in this article, you will be on your way to financial success.
These crucial steps, such as getting on a cell-phone contract, paying your bills on time, contributing to an RRSP and TFSA, and getting a secured credit card, will show lenders your consistent financial habits that will improve your credit score in Canada.
If you would like bankruptcy counselling to improve your credit rating in Toronto, the GTA, or Southern Ontario, our Licensed Insolvency Trustee is happy to help you.
For more information on how to rebuild your credit score after filing for bankruptcy in Canada, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.