How can you repair and rebuild your credit after declaring bankruptcy in Canada? The process is relatively simple: you must re-establish that you are a good credit risk. You can do it if you follow this six step After Bankruptcy in Canada Credit Rebuilder Plan:
1 Spend less than you earn. Debt is caused by spending more than you earn, so it’s critically important that you spend less than you earn in the future, or else you could find yourself facing debt problems again.
2 Track your money. You can do this by making a household budget, or by simply writing down everything you spend. Knowing where you spend your money will make it easier to reduce your spending, so that you can:
3 Save money. Saving money is the key to repairing and rebuilding your credit after bankruptcy. Without credit you need an emergency fund, so savings are essential. To rebuild your credit, savings are important to use as a down payment or security deposit for future purchases. For more tips, please see our article on After Bankruptcy in Canada: Top Five Tips for Saving Money.
4 Pay all of your bills on time. Once you are discharged from bankruptcy in Canada you no longer have any debts, so you are not burdened with monthly payments on your credit cards or lines of credit. Your only obligations are your monthly living expenses, like rent (or mortgage), hydro, groceries, and transportation. Be sure to pay all of these monthly bills on time, since you don’t want the hydro company reporting you to the credit bureau for late payments.
5 Get a secured credit card. Here’s how it works: you give the credit card company a deposit of $1,000 (or more), and they give you a credit card with a $1,000 limit. They are willing to do this as soon as you are discharged, because your credit limit is secured by your cash deposit. This works for credit repair after bankruptcy because the secured Visa card is reported to the credit reporting agencies as a normal credit card, so it helps re-establish your credit. Pay the balance in full every month and your credit score will gradually improve.
6 Get a small RRSP loan. If you have already followed the first five tips, most banks will give you a small loan to invest in an RRSP. Start by saving $1,000 (see Tip #3). Open an RRSP at your bank, and then ask the bank for a $1,000 RRSP loan. The best time of year to do this is January and February, just before the end of RRSP season, because bank’s generally have special interest rate offers. Even though your are recently discharged from bankruptcy, the bank will probably give you the loan, because you have already saved $1,000 and deposited it in an RRSP at their bank. They loan you $1,000, which when combined with your $1,000 totals $2,000 in your RRSP.
When you file your taxes you will have $2,000 in RRSP contributions that you can deduct, which will probably generate for you an extra $500 to $800 in tax refunds. You can then use your tax refund to repay most of your RRSP loan. There are two benefits to this strategy:
First, you now have $2,000 invested in your RRSP, so you have already started saving for your future.
Second, your credit report will show a loan that you repaid quickly (no-one will know that you repaid it with your tax refund), which improves your credit score.
Can You Recover From Bankruptcy in Canada and Repair Your Credit?
Yes you can, but it’s up to you. You will need to make a plan, and follow a disciplined approach to saving money and gradually rebuilding your credit, so that one day, if you choose to, you will be able to finance a car or house.
Of course you may decide to pay cash or debit for everything, so your credit report won’t matter, but it will be nice to know that a good credit score is there if you need it.