Life After Bankruptcy How Do I Rebuild My Credit Rating

2014-06-02

Once an individual has completed the difficult task of a bankruptcy or consumer proposal, the question that is asked most often is, “How do I rebuild my credit rating?” The answer is, you can start rebuilding your credit immediately. Here are three ways you can start rebuilding your credit rating after debt.

1. Pay your bills on time

Pay your rent, utilities and other regular living expenses when they are due. Avoid writing any NSF (non-sufficient funds) cheques. Doing so will impact your banking relationship and potentially your credit rating.

2. Apply for a secured credit card

Certain financial institutions offer a secured credit card. With this product, you deposit a certain amount (e.g., $500) with your selected financial institution. They use these funds to secure and give you a credit card with a $500 limit. If you charge $200 on the credit card that month, you will make a payment of $200 to the financial institution to pay it off. Charges are not taken off the initial $500 deposit, which the financial institution considers a guaranteed deposit should you fail to make a payment. This will build a consistent relationship of positive banking behaviour. If you carry though with paying off your monthly charges on time for a period of time, eventually the financial institution will increase your limit without increasing the deposit.

Remember: A credit card is for convenience, not a source of income.

3. Invest in a RRSP Loan

Let’s say you purchase a $1,000 RRSP loan with an initial deposit of $200. The balance of $800 will then be in the form of a loan. Normally a RRSP investment will create a tax refund. You should take the tax refund and pay off the loan. You’ll end up with an asset and investment of $1,000 and will have used credit responsibly.

RRSP savings can also be used to help save for a deposit on a home. RRSP’s are a longer-term savings investment, which can help you rebuild your credit rating.

For more information on rebuilding your credit rating after bankruptcy, or to learn more about your financial options if you are currently in debt, please set up a free consultation with your local MNP Advisor.