Life after Insolvency: Rebuilding your Credit

One of the most frequently asked questions we receive is how can a person rebuild their credit after a bankruptcy or a consumer proposal.

While every scenario is a little different, we've compiled a list of our top tips to help improve your credit score:

1. Correct any errors on your credit report

   An individual can request a free copy of their credit report. This report will not include the credit score, but it will include a detailed history of the information on the credit file. If there are any errors, both credit rating agencies have a process to rectify them.

2. Get a secured credit card and use it

   With a secured credit card, the individual places a deposit with the bank for the amount of credit given. The bank holds the deposit and the individual uses and pays the card like a normal unsecured card. The bank only uses the deposit if the individual misses a payment. This type of credit card reports to the credit bureau and will positively impact a credit rating if there is activity.

3. Get an unsecured credit card and use it

   There are some lenders who may issue a credit card to someone with a recent insolvency. This type of credit card reports to the credit bureau and will positively impact a credit rating if there is activity.

4. Pay credit cards on time

   It does not matter if an individual pays their credit card early, but it does matter if they pay late. Make sure credit card payments are made on time even if it is only the minimum payment.

5. Do not “max” out credit cards

   If credit cards are too close to their limit it will negatively impact a credit rating. In addition, paying down credit cards will minimize the interest charged.

6. Do not request new credit too often

   Every time someone requests credit, the lender does a credit check and it is noted on the credit file. Generally this is not an issue if there are periodic requests made, however if the credit requests are too frequent it will negatively impact the credit score.

Most importantly, people need to maintain perspective. A credit report and credit score are a measurement of one’s past ability to pay back money that was borrowed. People should not use their credit report or credit score as a measurement of their self-worth. We all agree that a good credit rating is important; however, do not lose sight of what a credit report and credit score measure – the past. A credit score should be used as motivation to improve one’s financial future.

Remember: that the most important things in life are not money and wealth, but family, health, friends and one’s spirit.