IN A NUTSHELL
The unfortunate reality? Debt problems do occur. Bankruptcy is often the best way to get rid of debt when other options have failed. But what about your credit rating? How will it be affected severely, and how long will it take to recover?
What is Bankruptcy?
Bankruptcy is a legal procedure that federal bankruptcy courts supervise. This helps people get rid of a portion of their debt or pay back some of what they owe.
Bankruptcy can make you debt-free, but it’s important to know that it can have long-term effects on your credit score.
The Impact of Bankruptcy On Your Credit
Because bankruptcy can hurt a person’s money and credit, it should only be used as a last choice. Credit Bureaus award the lowest credit rating when you file for bankruptcy, which can negatively influence your credit ratings.
Bankruptcies stay on your credit record for six to seven years. This can change based on which credit bureau is reporting and which province you live in. If this is the first bankruptcy, there will be a note on your credit record for six years after discharge. If filing for bankruptcy for the second time, this information can stay on credit records for 14 years.
How can I rebuild my credit after bankruptcy?
Finish Your Bankruptcy As Quickly As Possible.
As soon as you file for bankruptcy, it is essential to stay in touch with your Licensed Solvency Trustees. They can make sure that your case is going as planned. Make monthly payments and reports to your trustee, as well as attend your credit counseling programs. The sooner your bankruptcy is done, the sooner it will be removed from your credit record.
Make a Habit of Paying All Bills on Time.
Bankruptcy doesn’t stop debts from coming your way. It’s more important to pay your bills on time after you file for bankruptcy. Another effective way of rebuilding your credit is by managing and documenting all regular expenses such as electricity, internet, and phone bills. Always make at least the minimum monthly payment on credit card bills. Paying bills on time will not instantly affect your credit score but will gradually establish a good credit history.
Monitor Your Credit Report.
Regardless of your financial situation, it would help to do this at least once a year. A free copy of your credit report may be obtained from one of Canada’s credit bureaus, Equifax or TransUnion. Once you have it, go through it for errors and dispute any you might find. You will also need to double-check that all other information is correct and up to date.
Open a New Savings Account.
It’s a basic fact of life in Canada: banks give money to those who don’t need it, not to people who need money. To borrow again, you must demonstrate your ability to manage money, and the easiest way to do so is to show that you have some savings. Savings will serve as the foundation for future borrowing.
Apply For A Secured Credit Card.
The usage is reported to the credit bureaus by the companies that provide these cards. Use your card for one or two small, planned purchases every month, then wait for your statement to arrive and pay it in full and on time. Paying your secured credit card account on time has the same beneficial effect on your credit as paying a regular credit card bill.
Limit How Often You Apply for New Credit.
Don’t apply for too much new credit. Every time you do so, your credit report will be “hit.” This means that when lenders check your credit report to determine if you qualify for the credit, that check is noted on your report. If a lender notices that you frequently seek credit, they will be less likely to extend you more credit.
Use Your Credit Wisely.
With credit cards and bank accounts available, it may be easy to slide back into old habits like splitting costly or unneeded purchases into multiple payments, using payday loans, or spending with the use of a credit card up to its credit limit. Use this new beginning to form new, more responsible habits, and keep them in mind whenever you go shopping.
Can I qualify for a mortgage or car loan after bankruptcy?
It takes time to repair your credit; however, you may progressively increase the size and type of loan product you use to boost your credit score. If you wish to be approved for a large loan, such as a mortgage, your lender will typically ask that you have a documented repayment history on at least $5,000 in new credit since your bankruptcy. Alternatively, credit repair companies can assist you in rebuilding your credit for larger loans. As a result of filing bankruptcy, credit products tailored for those with extremely poor credit scores may have high-interest rates and upfront costs.
Those with a shaky financial history might start over by forming new financial habits, looking for favorable bank accounts, and gaining access to valuable resources such as secured credit cards. While it may take years to clear a bankruptcy, view it as a fresh start rather than as a curse.