Rebuilding Credit Rating After Bankruptcy: Budgeting To Improve Credit Score

If you’ve recently filed bankruptcy, or a Consumer Proposal, you know that a damaged credit score is part of the process. Re-establishing credit after an insolvency can begin immediately with a few time-tested steps. Although the insolvency stays on your credit report for up to 6 years, you don’t have to wait that long to take action.

Start With Fresh Accounts at a New Bank

The bankruptcy or proposal gave you a fresh slate and a chance to start over. Your old bank may have a long memory and make it difficult for you to rebuild. Try opening a chequing and savings account at a credit union or new bank. Fees vary widely, so be sure to check out the costs before you make a final decision.

Build a Savings Account

Your savings account is the most important part of your recovery plan and is the key to re-establishing credit. Not only will your savings account help you avoid debt, but it will help you access secured credit. When you build your budget, plan to make savings a high priority. Even though it might be difficult to access credit during bankruptcy, keep in mind that you can still prepare for life after bankruptcy. It’s likely you’ll have some extra cash now that you don’t have so many bills to pay, particularly since your payment requirement in a bankruptcy is just 50% of what is considered excess income. In the case of a proposal, it is less likely that you will have excess income left over. However, as soon as the proposal ends, you can start putting at least a portion of the amount you were paying on the proposal, into your savings account.

Check Your Credit Rating

You should check your credit report right away. Of course, your bankruptcy or proposal will be reported, but it’s important to check for any errors on your report. It’s not uncommon to find accounts that are reported inaccurately or that shouldn’t have been reported at all. If there are errors, dispute them. You can use the online forms provided by Transunion Canada and Equifax Canada to dispute mistakes on your report.

Live Within Your Means and Budget

Make a livable and workable budget by understanding exactly how much you have coming in and going out each month. Knowing how much you have to pay for essentials like housing, utilities, food, and insurance makes it easier to figure out how much you can save.
Review your budget each month and make changes where necessary. Living within your means is easier when you have a budget to guide your spending.

Apply for a Secured Credit Card

As soon as your savings is built up, you can use it to obtain a secured credit card. Rebuilding your credit and earning a good credit score comes from paying back your debts on time. If your savings account has $1,000 in it, think about using $500 for a secured credit card. A secured card is a credit card that is guaranteed by cash you deposit into a secured account held by the lender.

Make sure you choose a card that reports to Transunion Canada and Equifax Canada—only cards that report payments will improve your credit rating. Watch out for predatory secured credit offers. Some charge outrageous fees. Compare rates, perks, and fees before you sign on the dotted line.

Manage the Credit You Have

If you have a credit card, pay your balances off each month and never allow even one late payment, because a late payment will be noted on your credit score and work against you rebuilding that good credit score. The same thing applies to utility and cell phone bills. Something else to avoid, is applying for multiple credit cards. Every application that gets rejected will be noted on your credit score and make it more likely that you will not be given credit.

If, while you were bankrupt or paying on a proposal, you retained an asset on which you are making payments, such as a car or a home, your payment history on that asset can also help you rebuild your credit — if it is a good payment history. If you make your payments in full and on time, your score will reflect your good debt management and will steadily improve.

Re-establishing credit after bankruptcy or a Consumer Proposal is not as difficult as you might think. Most lenders understand that bad things happen to good people and are willing to help you improve your financial health and credit standing. Lenders will also realize that since you no longer have any unsecured debt, you have considerably more ability to repay any new debt that you incur.

As you demonstrate good money management skills, you will find more opportunities coming your way.

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Jillian Taylor-Mancusi, LIT

Jillian has worked in the insolvency field since 1992. She is a graduate of the University of Manitoba. She received her Insolvency Counselor’s Qualification Certificate from Ryerson Polytechnic University in 1998, and in 2007 she attained her license as a Licensed Insolvency Trustee. Jillian is a Read More Jillian has worked in the insolvency field since 1992. She is a graduate of the University of Manitoba. She received her Insolvency Counselor’s Qualification Certificate from Ryerson Polytechnic University in 1998, and in 2007 she attained her license as a Licensed Insolvency Trustee. Jillian is a member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP). She is Past President of the Manitoba Association of Insolvency and Restructuring Professionals (MAIRP).Jillian has held positions on the Armstrong Point Association, Executive of her local EDA Riding Association, Manitoba Highland Dance Association, and the Continuing Education Committee of CAIRP. Previously, Jillian was the Treasurer for the Parent Association at her daughter’s school. Currently, Jillian serves as the Chair for Dressage Winnipeg. Close