32011Aug

Starting Over Rebuilding your Credit

When your credit has reached a point of “beyond repair” and filing for bankruptcy is your only alternative, do not despair. Bankruptcy gives you a new opportunity to get it right the second time around. One concern for many individuals contemplating bankruptcy is the effect on their credit rating. Bankruptcy will bring a person’s credit rating to an R9 with the credit bureau. It will remain so for 6 years after the bankrupt obtains his discharge, after which it will be deleted from the debtor’s credit file. Does this necessarily mean that you won’t be able to get credit during this period? No, it does not.Your credit rating is certainly an important factor in determining your credit worthiness. However, lenders will look at other factors such as your income and your ability to get a guarantor or co-borrower. There are also other ways through which you can rebuild your credit.

Auto Loan – If you are in the market for a vehicle and need financing, Auto Loan Help will shop around for the best and lowest rate available to you. We at Auto Loans Canada are in a position to help you rebuild your credit. We can assist in arranging an auto loan and vehicle that meets your monthly budget and requirements.

Secured credit cards– Certain financial institutions issue secured credit cards. By providing a bank or trust company with a money order (usual minimum is $1,000) along with the credit card application, you’ll be issued a credit card with a maximum credit line equal to the money order. For example, you submit a $1,000 money order along with the application form, and you are issued a credit card with a limit of $1,000. The bank has your $1,000 as security to ensure you pay your credit card balance.

You can also start to re-establish your credit by doing the following:

  • Talk to your banker and say you want to re-establish your credit rating.
  • Open a savings account.
  • Be a regular and persistent saver. Use the common techniques I am sure you have heard of.
  • Pay yourself first.
  • Take your next raise and save it.
  • Save 5 % of your pay.
  • Have your savings come right off your pay and into a separate savings account.
  • Take out a small loan using the savings account as collateral, and then pay it back.
  • Apply for a secured credit card.

Rebuilding Credit

Pay your credit card balances on time.

If you are one of the many unfortunate people that have had to file for bankruptcy we congratulate you on the start of your new financial life. Hopefully, you have learned some hard lessons from your financial mistakes and sincerely want to avoid them in the future.

The good news is that there is hope. You can recover from bankruptcy and get credit once again even though you will have the dreaded bankruptcy black-mark on your credit report for another ten years.

The truth is, the first two to three years after bankruptcy is going to be tough, however, there are some steps that you can begin to take to start rebuilding your credit immediately. The sooner you begin good financial habits the quicker you are going recover and earn good credit once again.

To begin rebuilding your financial profile you have to start proving that you’ve learned from your mistakes. There are steps that can be taken, in stages, to begin rebuilding your financial profile and restoring your credit rating.

Immediately:

Savings Account – If you do not currently have one,establish a savings account and start making regular deposits for an emergency fund.

Create no additional debts – This one seems like a no-brainer but it is surprising how many people try to rush right out and finance something. Even with a bankruptcy on your record there are places willing to extend credit, at a cost. Avoid using buy-here, pay-here car sales, rent-to-own stores, and the like.

Pay Mortgage/Rent/Utilities on time! – If you rent, or were lucky enough to keep your home, make your payments on time! You want to show that you have learned from your mistakes. Late payments may get reported to the credit bureau, which will severely damage your credit even further.

If you retained a credit card through your bankruptcy, use it once in a while for small purchases and pay it off immediately at the end of the month. If there was an extraneous reason for your bankruptcy, such a death of a spouse, divorce, severe illness, etc., be sure to list that on your credit report. This will not affect your credit score but could help if there is a judgment call to be made.

6 – 12 Months:

Apply for a secured credit card – Banks will be more willing to give you a secured credit card after bankruptcy. With a secured credit card, you deposit money into a special account with your bank. The bank then issues you a credit card with a limit equal to the amount you deposited.

Shop around to different banks – When comparing banks for your secured credit card, make sure to look at their interest rates and fees that they charge. Do not pay any upfront fees. Also, ensure that they will report your good credit management to the credit bureaus. Do not apply for credit cards more often than every six months – If you apply for a credit card and get turned down you will need to continue to practice good financial habits and reapply later, preferably with another bank. Each time that you apply for credit your credit score will go down slightly. Continued reapplication for a credit card or loan could severely affect your credit rating!

After 1 – 2 Years:

If you keep your accounts in good standing and your mortgage/rent and bills paid on time you should started getting better offers for unsecured credit cards in the mail. Be careful not to fall back into the credit trap though—use your new credit wisely! Also, be sure to read our article on Credit Card Traps to Avoid!

In the early years your credit is going to cost you more be prepared to pay substantially higher interest rates for loans and credit cards. However, you can help take the sting out of those higher rates by paying off your credit cards in full at the end of every month and paying extra towards the principle on other loans.

If you consistently practice good financial habits and aggressively work to pay your bills on time and not accumulate too much debt the less your bankruptcy will matter and the more likely lenders will be willing to extend to you better interest rates.