How to Rebuild Your Credit

Rebuilding your credit after bankruptcy or a consumer proposal can be key to developing a stronger financial future. It's important to adopt good financial habits so you can demonstrate to creditors that you can responsibly manage payments. Follow our step-by-step guide to help rebuild your credit and get back on financial track sooner.

Step 1: Review Your Credit Report

Reviewing your credit report can help you take an honest look at your financial habits and identify which ones may have led you to filing for bankruptcy or a consumer proposal in the first place. Check your credit report on a regular basis to track your progress and monitor if your efforts are having a positive effect on your credit. You should also check the report for any incorrect information or errors that may be negatively impacting your credit; if so, notify the credit bureau immediately. You can obtain a copy of your credit report through the two largest credit bureaus in Canada: Equifax and TransUnion.

Generally speaking, first-time bankruptcies remain on your credit profile for six years from the date of discharge, while consumer proposals remain on your credit profile for three years from the date of full performance.

Step 2: Create a Budget

In order to avoid going back into debt and start rebuilding your credit, it's vital to become more mindful of your spending. Keeping a budget is critical for tracking not only how much you spend, but where your money is going every month. By seeing your spending habits at a glance, you can start pinpointing areas where you need to cut back or exercise more self-control. A budget can help keep you accountable in ensuring you are living within your means and not spending more than you earn each month.

Step 3: Get a Secured Credit Card

A secured credit card can help you re-establish your credit. By making credit card payments on time, you are demonstrating to creditors that you can responsibly manage debt. Like a normal credit card, secured credit cards are reported to the credit reporting agencies. However, a secured credit card requires a security deposit, which the credit card company will generally hold for about two years. For example, you put a deposit of $1,000 and the credit card company gives you a card with a $1,000 limit—the credit limit is secured by your cash deposit. Making a few small purchases on the card each month and paying each statement on time and in full will help improve your credit score.

Step 4: Make Payments on Time

In order to rebuild your credit after a bankruptcy or a consumer proposal, it's vital that you start establishing a reliable payment history. That means paying all bills on time, including your credit card, utilities, cell phone, etc. If you cannot meet the full balance, pay at least the minimum payment by the due date each and every month. To help ensure you are consistent and on time with your payments, set up automatic bill payments. If you are concerned about overdrawing your account with automatic payments or you would rather make payments manually, set up regular reminders on your phone or calendar so you don't miss a payment.

Step 5: Open an RRSP Account

When you are able, consider opening an RRSP account and asking the bank for a small RRSP loan. The best time to do this is in January or February, as the banks typically have special interest rate offers near the end of RRSP season. Making on-time payments on a small RRSP loan will help improve your credit score by showing on your credit report that you repaid a loan quickly.

Start Your Journey Today

Rebuilding your credit after bankruptcy or a consumer proposal takes time, patience, and discipline. However, by following the above steps, you can develop smart financial habits and make progress towards building a better credit score. If you have any questions or want to learn more about rebuilding your credit, contact MNP LTD today.

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