Rebuilding your credit can feel nearly as daunting as getting out of debt after completing a Bankruptcy or a Consumer Proposal. It can feel like you’ve spent all your energy reaching one insurmountable peak — only to face another equally daunting climb ahead.
When you’re standing at the bottom looking up yet again, remember how much stronger and more capable you are than when you started all those months ago. As with any climb, you don’t have to do it all at once. Taking a few steps every day will get you where you want to go. The following roadmap will help you focus your goals, outline your process, and visualize the reward waiting for you at the end of the journey.
The very first thing you’ll want to do after completing your Bankruptcy or Consumer Proposal is to request your credit report from Equifax and TransUnion to check it for accuracy. A report that is full of errors, poor reporting, and inaccurate ratings will delay your ability to rebuild your credit. It would be like trying to climb a steep, rocky trail in flip flops when you really need a sturdy pair of hiking boots.
Becoming deeply familiar with the good, bad, and ugly details of your credit report and immediately fixing any errors or inaccuracies will be a favour to both yourself and your future financial life.
Climbing a mountain takes planning. You need to know where you’re going and what you’ll need to get there before you ever set foot on the trail, and rebuilding your credit is no different.
Thank about your financial destinations and write them down. Certain types of credit products may help you reach your goals. Ask yourself if you are:
You can achieve each of these goals — but only with the right process, commitment, and a clear sense of direction. The sooner you set your intentions, the sooner you’ll get there.
Not all paths will lead to the top of the mountain. Similarly, not all paths to rebuilding your credit will suit your unique situation and goals.
Some lenders may require you to pay a security deposit to qualify for a credit card. This provides added insurance to your lender if you fail to make your payments, like a damage deposit on a rental home. Your lender will keep your deposit and pay you interest on it until you qualify for an unsecured credit card.
Your limit will be low, but ensure you keep your balance even lower — if not zero — and only use the card for something you will pay back immediately. This is the safest way to manage your credit, especially if it’s been a challenge in the past.
Once you build your credit reputation with the lender, they may increase your limit and/or remove the secured status on the card. However, this is not a green light to spend more. It’s a reward for responsibly paying for your credit.
Eventually, you can start looking at longer-term credit products such as an instalment loan or line of credit.
An instalment loan with a set payment schedule is one of the safest ways to rebuild your credit, as you are unable to access the money you’ve repaid. You’ll just want to ensure your lender reports your monthly payments to the credit bureaus.
A line of credit is a revolving credit product with a large credit limit. These offer low interest and low minimum payments. However, ready and repeatable access to credit often fools people into thinking they have the freedom to spend more — and that’s a trap you’ll want to avoid.
If one of your financial goals is to purchase a home, a multi-leveled path is your best bet. This involves having two to three forms of revolving credit, such as credit cards or lines of credit, and actively using the cards for two to three years to build your limits up to certain levels.
This is the path many mortgage professionals recommend for establishing a quality credit history and score, making it easier to qualify for a mortgage when you’re ready. While this road is longer and requires conscientious planning and management, it more than makes up for the time and effort spent in options and opportunities down the road.
An old proverb states: “If you want to go fast, go alone. If you want to go far, go together.” It’s just as true if you’re climbing a mountain or working to rebuild your credit. Learning for other’s experiences, explain your goals to a financial professional, and ask for recommendations and help evaluating your options.
Finally, take your journey one step at a time. Don’t forget to stop every now and again to appreciate the journey, enjoy the view, and celebrate how far you’ve come.
If you’re currently struggling with overwhelming debt and financial stress, reach out to a Licensed Insolvency Trustee (LIT) to learn more about your debt relief options. The LIT will review your financial situation, discuss your goals and challenges, and help you explore opportunities to achieve a fresh financial start.
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