Rebuilding Your Credit After Bankruptcy
Let’s be honest. Problems with debt can happen. Whether it’s because we’ve lost a job, significant illness or the loss of a family member, we can find ourselves unable to stay on top of the bills. Without a proper money plan in place, we can find ourselves with no other option but to file for bankruptcy. It can be a difficult process to get through. Rebuilding your credit after bankruptcy is not impossible with the right approach.
When Can You Start Rebuilding?
If this is your first bankruptcy, it stays on your credit report for no less than 6 years after your date of discharge. If it’s your second or third then it will stay on your report for up to 14 years, depending on which province/territory you call home. A lender reviewing your report will see that you have filed for bankruptcy. As that indicates that you have trouble managing money, they will reject your applications for credit. For a first bankruptcy, your discharge could be as early as 9 months. However, there are times where bankruptcy court will extend it up to 21 months. Discharge dates for a second bankruptcy could be between 24 and 36 months. Once fully discharged from your debt then you can begin to tackle the job of rebuilding your credit.
Rebuilding Credit After Bankruptcy
- Get a copy of your credit report from both TransUnion and Equifax. Ensure there are no debts that were covered by your bankruptcy. If there are errors, file a request for correction directly with the provider of the credit report.
- Pay all of your bills in full and on time. Utility, cell, or cable bills need to be paid, according to the agreement that you signed. That means in full and on time. While utilities don’t report payments to the credit agencies, your cell service provider just might be one of the ones that does report to TransUnion or Equifax. If you’re paying that cell bill in full and on time, then this is a good thing because you need all of the positive reporting that you can get.
- Apply for a secured credit card. Filing for bankruptcy requires you to turn in all of your credit cards, even if they have a zero balance. Living without a credit card can be tough. You can’t book a hotel room or rent a car without a credit card…even if you have the cash on hand. Consider applying for a secured credit card. You pay a deposit which is equal to the credit limit on the card. The card issuer holds the deposit for a period of up to 2 years. Use it sparingly and pay the balance in full and on time every month. Once your credit score starts going up then you can apply for an unsecured card.
- Budget. It’s not a dirty word. Building a realistic budget will help you manage debt. You need to know where your money is going and where you can make better spending decisions. A good budget will also include contributions to a savings account which you can use in an emergency. The lack of an emergency fund can put you back into a cycle of debt that can spiral out of control.
Do keep in mind that you shouldn’t apply for too much credit all at once. All of those hard inquiries can leave a lasting mark on your credit report. Research secured credit cards and apply only for those where you are reasonably sure of being approved. In this way, the hard inquiries that come from the application will actually yield a positive result. As well, a lot of hard inquiries will make it appear that you’re entering a period of financial distress which is a red flag to lenders.
Keep clear of any company that claims they can fix your credit rating. There isn’t anything that they can do that you can’t do on your own. As well, the money they charge you would be better used in paying your debt.
At PYLO Financial Inc., we believe that there is a way back to a healthy credit score after you have been discharged from bankruptcy. Speak to one of our representatives and see if one of our products can help you on the way.