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How Does Bankruptcy or Consumer Proposal Affect Your Credit Rating

A Credit Rating is something almost everyone has, but few understand. In Canada there are two commonly used credit rating agencies: Equifax Canada, and TransUnion.

Both sites have information sections for consumers and we recommend you review them for your own benefit. Also you should refer to this site for further information: Credit Reporting – Government of Canada.

Credit-Rating

Tips for managing your credit rating

Get your credit reports

We strongly recommend that you obtain your credit report from both agencies annually and read it to ensure it is accurate. If there are errors it will take some time to correct them and you don’t want errors to impact on major purchases you need to finance.

Things you can do to improve your odds of being able to borrow money

  • Make your payments on time.
  • Get positive reference letters from your landlord and/or utility companies.
  • Maintain a balance in your bank account, and be careful not to bounce cheques.
  • Talk to your financial institution about your situation; if you have been a good customer for some time, they might be willing to give you a credit card or a small loan.
  • Some financial institutions offer “secured credit cards”, whereby you place a sum of money on deposit with the lender, and they issue you a credit card with a credit limit equal to or slightly less than what you have on deposit. The money you place on deposit is frozen, and used by the card issuer to cover the balance if you default on payments.
  • Consider an RRSP loan, which will also serve to reduce your income tax payable.
  • If you are a student, you can apply for a credit card through one of the various student credit application kits available on campus.
  • Ask if a family member is willing to co-sign for a loan and then repay it on time.

Other factors that impact your credit rating

A credit rating forms only part of the scoring process lenders use to determine whether or not you qualify for credit. You can influence some factors that impact the score though, these factors include:

  • Gender
  • Marital status
  • Annual income
  • Employed or self-employed
  • Length of time at current and previous jobs
  • Length of time at current and previous addresses
  • Property owner or tenant
  • Net worth
  • Other existing debt payments
  • Security offered for debt
  • Amount requested
  • Repayment period

Credit Repair

If you have a bad credit rating, beware of companies that offer to “fix” it for you, for a fee. The Credit Reporting Act in Ontario specifies how long items must remain on your credit report, and a credit rating reporting agency will not remove legitimate information before the appropriate time.

If there is a factual error on your credit report, you can have it corrected at no cost to you, by providing the necessary documentation yourself, or having your creditor(s) do so. The bottom line is that “credit repair clinics” can cost you several hundred dollars for work you can do yourself for free.  For more details check out these government websites: Credit Reporting – Canada, and Credit Repair – Ontario.

Bankruptcy and your credit rating

Those with severe debt problems often think that they will ruin their credit rating if they file for bankruptcy. They do not educate themselves about all their options because of their assumptions and fear. When educated about their options early, they may find out that they could file a proposal, avoid bankruptcy, solve their debt problem and start rebuilding their credit rating, all at once.

Or, they may determine that bankruptcy is the only practical option; file and start over as soon as possible, rather than delaying for months or even years and suffering because of their assumptions and fear. Even when someone files bankruptcy they can start rebuilding their credit rating immediately after the bankruptcy – usually 9 months after filing.

Educating yourself, and getting help soon is the best way to solve a debt problem and to start rebuilding your credit rating.  Avoiding the problem because of assumptions and fear causes more harm.

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