How to Repair Your Credit Score After Bankruptcy

Bankruptcy will leave your credit score in ruins. You will have bankruptcy mentioned on your credit report and credit status will be completely cleared. However, do not get discouraged. Building credit may sound difficult but is not impossible. Take this as a second chance to make a financial future better.

There are two major things you need to understand after bankruptcy. Firstly, you need to become responsible for your money. Secondly, you should know about methods to improve the credit score.

Remember that without financial discipline in life, your credit score will always be at risk of becoming poor again.


Repairing Credit Score in Canada

If you filed bankruptcy in Canada, it will be shown on your credit report for 6 years after you have been given the discharge certificate. The discharge certificate is the official document that indicates how the bankruptcy was completed. You do not need to wait for 6 years to start building a credit score. Instead, you can begin working on the credit as soon as you are given the discharge.


Here are a few helpful methods to build the credit back up

1. Your regular bills play an essential part in building your credit. Paying your bill on time will not only help you become financially responsible but leave a good impression on the creditors. The timely payments do not directly improve your credit score. However, if you ever go to lenders in the future, they will be able to trace the fact that you are using money effectively.

2. Avoid frequent credit applications. Each time you apply for credit, it affects your credit report. You should wait for at least 6 months if you have been rejected for credit once or twice upon application. In Canada, this is an important factor for checking or calculating credit scores.

3. Get a secured credit card from a bank that reports to credit bureaus. You can deposit some money to the bank and will be given an equal credit limit. This amount is affordable and is used in case you default on the account. After some time, you can ask if the deposit and credit limit can be increased. A high limit means that the balance will be low. This leads to faster credit score improvement.

4. You can get a cell phone on contract. The reputable companies report your payment schedule to the credit bureaus. Do not lag behind your payments. Pay them fully every month. This will make you appear responsible on the credit report.

5. Get a loan for an RRSP. Yes, you can get this loan even with poor credit. It is a very small amount that is payable over a period of 1 year. The amount goes into an RSP account. Moreover, the amount will only be available to you after you have paid all the installments. It has dual benefits. Firstly, the monthly and responsible payments add to your credit score. Secondly, you add to your net worth.

6. You can take out a mortgage. This may seem like impossible given that you have no credit at all. It is true that you cannot take out a mortgage immediately after discharge. However, if you have already been working on building your credit and succeeding a bit, then it is time to boost it even more. Mortgage lenders check for income, debt level, and credit score for qualifying a candidate. With the bankruptcy, most of your debts are cleared and the income is not affected. For credit score, you can prove the gradual efforts you have been making since discharge. If you strongly qualify based on income and debt, the chances of the lender approving the mortgage are high


Living Responsibly

As mentioned before, all you steps to improve the credit score will go in vain if you do not become responsible for expenses. Here is how you ensure that your finances are managed well:

Start living within your means and stick to a budget plan. There must be many expenses that are unnecessary. Cut these out. In Canada, you will be able to find several alternatives to the luxury you were enjoying previously. You can live comfortably and within your means at the same time.

Start saving money. Savings are a smart backup in case you ever have to face tough times. Instead of filing for another bankruptcy, you can turn to your savings when immediate debts have to be cleared. On the other hand, you will experience a psychological relief in knowing that you have financial backup plans.

Try to increase your monthly income. You can start searching for better-paying jobs but this may be a risk to the already steady income. Looking for a part-time job is a better idea.