Rebuilding Credit After A Consumer Proposal Or Bankruptcy

You have just fully performed your Consumer Proposal or have just received your discharge from Bankruptcy. Congratulations! You are now debt-free and you can devote your time and energy towards planning and building for your financial future.

There are two major credit reporting agencies operating in Canada: Equifax and TransUnion. These credit reporting agencies monitor and maintain your credit profile, including reporting Consumer Proposals and bankruptcies. In general, Consumer Proposals remain on your credit profile for three years from the date of full performance and bankruptcies remain on your credit profile for six years from the date of discharge for a first time bankrupt.

How does one go about rebuilding credit after a Consumer Proposal or a bankruptcy? The essential components of rebuilding credit involves having access to credit and demonstrating a history of on time payments. So how would one gain access to credit after successfully completing a consumer proposal or receiving their discharge from bankruptcy?

Savings:

Before making serious efforts towards rebuilding credit, you will want to ensure that you and your family are on solid financial footing. Hopefully you will have been able to open a savings account and have been making regular deposits. If not, I would recommend taking the monies you had been allocating towards your Consumer Proposal or bankruptcy and saving to create an emergency fund. Having an emergency fund is important as it will allow you to manage unexpected expenses in the future without having to resort to going into debt.

Secured credit card:

Apply for a secured credit card. You will need to save up about $500 for a security deposit for the credit card company to hold for approximately two years. Use the card each month for one or two small purchases. Ensure that the statement is paid in full at the end of each month. This will help to rebuild credit.

RRSP and RRSP loans:

At some point, you might want to consider opening an RRSP account and save for your retirement. At that time, consider asking the bank for a small RRSP loan. January and February are the best times for this as the banks often will have special offers on the interest rates on these types of loans. Making on time payments on this type of loan will also help to rebuild your credit.

Beware of credit repair firms:

Beware of companies that promise to help you re-establish your credit for a fee. Their ability to change the information that appears in your credit file is no different than anyone else's. Only your creditors are able to alter this information; therefore you do not need to pay a third party to obtain, discuss, review or make changes to your credit report. The only way to rectify a poor credit rating is to adopt sound credit practices for a period of time.