Bad Credit? Declared Bankruptcy? How to Rebuild Your Credit After the Credit Apocalypse

Had to cut up your credit card?

Had to cut up your credit card?

Unfortunately for many people, we never received a manual on how to handle our debt as we enter adulthood. If you have run into financial difficulty that resulted in damaged credit, you might find it hard to obtain new credit. Past credit mistakes can be nearly impossible to move past, especially when new creditors and lenders are unwilling to give you a second chance.

I suggest you read this article on “Understanding How Credit Works” first. If you understand how your credit is calculated, then continue on this article.

Every lender wants to see a long history of consistent payments for loans. They prefer that over someone who pays everything off immediately. There are term loans and revolving loans. The main difference is that the term loans also known as installment loans only help to increase your credit while you are currently repaying it. They are considered installment credit whereas credit cards are classified as revolving credit (read more about installment vs revolving credit on Investopedia).

Although most lender perceive anyone with installment loans as lower risk and better credit worthy, the credit gained on these type of credit will diminish over time after they are paid off. The main reason is that they become “dormant” after being fully “paid” just like a good credit card that you decide to close the account.

Tax season is around the corner. This is an ideal time to start rebuilding your credit. If you have the money to set aside for a rainy day, DON’T!

Ask your local bank for an RRSP loan and use that to lower your taxable income and possibly receive a bigger refund. This is pretty much a secured loan because they hold your RRSP and have it locked-in and you can use the funds you have available to quickly pay it off. Also DON’T!

Paying the RRSP loan off over time is better because the bank will post your payment history to your credit file, which in turn will increase your score over time. Yes, this goes against what our parents taught us but that is how the credit building game works.

If the Banks won’t lend you money for an RRSP because of recent bankruptcy or consumer proposal (from credit counseling) you can get a secured credit card or secured investment loan from Refresh Financials (see below).

What do you do when you need to re-establish your credit, but can’t get a credit card?

 

You get a secured credit card!

Most lenders are looking for at least 2 different “active” credit references on your credit bureau file. The most ideal thing to do is get a Visa and a Mastercard. If you already have an RRSP loan, you would only need one card. See links below to get your new credit card and start to rebuild your credit file. Just be aware that these cards have setup fees and annual fees as well as other standard card fees.

You can get yourself one easily by clicking below to request for your secured Visa or Mastercard :

 Apply for your Visa Now!

Click to Get Your Visa Card Today!

Apply for Your MasterCard Today

Click for more details

If you do not have a lot of money, start out with $500 and try to increase over time to the magic number of $2,000.  Lenders consider $2000 as a good indication of re-established credit.

Another source of credit that you can get would be department store cards (Canadian Tire, FutureShop, Walmart, Sears).  They are easier to apply for than unsecured credit cards and most of the time have lower requirements.

Although you can also get loans from such companies like CitiFinancial (which are typically high-interest) but they are considered “loans of last resort”. They can actually impact your credit rating negatively under certain circumstances. Talk to your credit counselling advisor about it first.

A better alternative that will immediately help you to improve your credit and get you into the habit of “forced savings”is getting this investment loan:

Guaranteed Investment Loan:

Refresh Financial

Refresh Financial offers this option.  It’s called the Refresh GIC Investment Loan.

With the GIC Investment Loan you make monthly payments. Those payments are then reported to the credit bureaus. After a period of perfect repayment (of the GIC Investment Loan and all other accounts), people generally see a noticeable improvement in their credit score.

“Virtually everyone is approved,” says Refresh Financial CEO Michael Wendland.
Refresh Financial currently offers these term/amortization options:

  • 3-year ($1,200 loan) with $12/weekly payment

  • 3-year ($2,300 loan) with $23/weekly payment

  • 5-year ($5,500 loan) with $36/weekly payment

Wendland says the larger the loan, the bigger the effect it has on your credit rating. The 5-year $5,500 option is offered because “some A lenders want more than $5000 re-established out of bankruptcy,” he says.

Other things to know:

  • Payments are automatically debited from your bank account on the due date each month

  • At the end of each term you receive the proceeds of the GIC that is placed in your name. This often serves as “forced savings for a down payment,” says Wendland.

  • This program is available in every province except Quebec.

  • Refresh Financial is one of the “only lenders in Canada that can lend before bankruptcy is discharged,” according to Wendland.  Even approved without consumer proposal being completed.

Just click the following link to get more information about the Refresh Fianancial’s GIC Investment Loan.  Please note, Refresh Financial currently only updates on TransUnion and not Equifax.

 

Final words of caution, there is no “secret” or fast way to rebuilding credit. Don’t believe everything you read on the internet. Even if someone tells you that they can do it if you pay them a fee, there is no instant solution. That’s not how it works. It will take time to rebuild. You have already paid dearly on your first lesson, let’s not pay more.

Things to avoid on your credit rebuilding journey:

  • paying on the due date or late even one day on your credit card (even secured credit card) is not smart. Always pay a few business days earlier.

  • paying late on your cellular phone, utilities, cable bills. Although they do not add yo your credit file, they can hurt your credit by showing late payments.

  • allowing a car dealership to check your credit unless you are signing for that car loan that day. Most private auto dealers do not help rebuild your credit (even if they tell you otherwise). You can confirm that by calling Equifax or TransUnion credit bureau.

If you have any questions, feel free to tap into my 15+ years of experience in the financial services field.  Call me anytime (604) 726-7878.

Good Luck to you!

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