Credit vs. Bankruptcy: Is Rebuilding Credit After Bankruptcy Possible?
Life After Discharge: Building Credit After Bankruptcy
When someone is discharged from bankruptcy, they usually have many questions about their credit score. Rebuilding credit after bankruptcy might seem difficult. However, it is entirely achievable if the right steps are taken along the way.
Filing for personal bankruptcy in Canada is not an easy decision, but a licensed insolvency trustee can make the process run smoother. They will also be able to provide information and advice that will help anyone understand how credit works.
The following information is abriefsummary of the basic information anyone would need to answer their initial questions about bankruptcy and their credit score.
How a Good Credit Score is Graded
There are many different factors that determine someone’s credit score. The most important three factors are: payment history, negative information such as bankruptcies, collections and judgements, and outstanding debts. These are the factors that credit institutions are guaranteed to look at when determining a credit report and score.
This includes how many late payments are on a person’s record. Some bills, such as utilities and mobile phone bills, generally do not appear on a credit score. However, if the individual makes any or frequent late payments, these companies can report those records to credit companies.
When analyzing someone’s credit, the credit company will consider the amount of outstanding debts that the person still has left to pay. If there are a lot, or if the amount is really high, this can decrease a credit score. Ideally, you would want to keep balances below 35% of your available credit. For example, on a $1000 credit card , you would not want to carry a balance of more than $350.
Some alternate factors that can affect one’s credit score are loan type and credit history. The company might consider these factors, but they are not always included. At the end of the day, it will be up to the specific situation.
Types of Loans One Uses:
If the individual is relying on more of one type of loan over another, this can affect their credit score. One example of this could be using too many credit cards as opposed to secured loans.
This includes how many loans and lines of credit someone has used in the past. For example, if someone is to apply for too many types of credit all at once, this can negatively impact their credit score.
What is Considered a Good Credit Score in Canada?
Credit bureaus are responsible for collecting information about consumers’ financial activities, and the information is then sold to credit lenders, insurance companies, and sometimes employers.
Credit scores in Canada are graded according to a rating scale determined by the creditors, not by the credit bureau.
These rating scales generally range from 300 to 900, but can be different depending on the institution.
A good credit score is above 650. Scores that are above 750 are considered excellent. Anything over a 700 will be a good sign for a loan or line of credit.
Canadians can access their credit report free of charge, but to see the credit score itself they must order it and pay a fee. However, it is always a good idea to be aware of and pay attention to a credit score.
What Happens to a Credit Score After Bankruptcy?
Bankruptcy stays on an individual’s file for six to seven years after discharge for someone who has declared bankruptcy for the first time. This could be extended to fourteen years if that person has been bankrupt before.
During this time, if someone wants to do anything that requires a credit check or apply for a loan, the institution checking the credit will be able to see the bankruptcy information on their file.
Since the credit score itself is determined by the creditors and not the credit bureau, it is up to the discretion of the creditors as to whether or not they want to give someone a credit or loan after bankruptcy.
This does not mean that someone cannot get a loan in the six years after bankruptcy, but they may need to follow a specific procedure. Their licensed insolvency trustee will go through this with them.
Rebuilding Credit After Bankruptcy
A person must decide how aggressive they wish to be in rebuilding their credit after bankruptcy. It is different for each individual in terms of what type of credit would be right for them.
For further information, one can arrange a sit down meeting with their bank or financial institution to discuss their options. This includes providing evidence that they have a surplus income or have been fully discharged from bankruptcy.
Give yourself time.
Time is one of the most significant factors to improve your credit score. Establish a long history of paying your bills on time and using credit responsibly.
A Licensed Insolvency Trustee at Crawford, Smith & Swallow Can Help
Crawford, Smith & Swallow has been serving the Niagara region for 70 years, helping clients get their finances under control. Our licensed insolvency trustees are trusted professionals who are dedicated to giving clients the assistance they need to help repair their lives.