If you have filed a Division 1 or Consumer Proposal or declared Bankruptcy, you are required by the Bankruptcy and Insolvency Act to attend two Credit Counselling sessions. Look at these sessions as an opportunity to learn the tools to help you manage your finances in the future.
The Credit Counselling that will best help you is not going to be the same as the counseling that’s best for someone else. Your needs are different, your learning style is different, and no two stories are the same. That’s why, at GTA Credit Solutions, we tailor our sessions to your needs. Our counselors are serious about helping you build a better life.
From debt management and budgeting, using credit well and rebuilding your credit, to identifying and achieving financial goals, these sessions give you the knowledge and skills to start over. And succeed.
If you have specific issues that have contributed to your financial predicaments, such as compulsive shopping or gambling addiction, we can help you find the support you need to keep it from happening again.
Our goal is to help you through your current problems and onto a brighter future. Helping you solve your financial issues and giving you the tools you need to succeed is what we’re all about.
What happens to me after I declare bankruptcy or make a proposal?
You’ve gotten through declaring personal bankruptcy and has been discharged, or your consumer proposal has been accepted. Now, what do you do?
One of the biggest concerns for someone in your position is the effect all of this will have on your credit rating. And rightfully so. Your credit rating is important – it can be the key to buying the house you want, driving the car you want, even sending your kids to college. You should want to rebuild it, and protect it in the future.
Fortunately, doing so is easier than you might think.
What about my credit rating?
Credit-reporting agencies (or credit bureaus) collect borrowing and repayment data from your lenders and compile it into your credit history. When you want to borrow money again, a potential creditor has only to contact one of these agencies to find out if you’re a suitable risk.
If your credit history is poor, your request for credit will likely be denied. If it is granted, many lenders will charge you a higher rate of interest than they charge someone with good credit. Seems a bit backward, doesn’t it? But lower interest rates are just one of the many rewards for maintaining a great credit record.
In Canada, we have two major credit-reporting agencies, Equifax and TransUnion Canada. These agencies compile a snapshot of your credit history into a credit report. You have the right to see your credit report.
Visit www.equifax.ca or www.transunion.ca to order a copy of your credit report. It’s actually a good idea to order your credit report periodically. It’s not expensive, and sometimes an error will crop up that may affect your borrowing power. They’re usually quickly corrected with a phone call or a letter.
No one can see your credit report but you, but when you apply for credit, the lender will usually ask for your consent to do a credit check, which allows them to check with these agencies to learn about your credit history.
Although each of these agencies has a different methodology, they both provide this information about your credit history in the form of an assessment, usually referred to as a “credit rating” or a “credit score.”
That rating is based on several factors. They include how promptly you make payments on your revolving credit accounts, such as credit cards and lines of credit; how far past the due date you made any late payments; whether you have ever missed a payment; whether you’ve made special payment arrangements to settle your debts; whether anything you’ve purchased on credit has been repossessed; whether any of your debts have been placed into the hands of collection agencies; whether you’ve ever disappeared without a forwarding address, etc.
You probably already knew some of that. But would it surprise you to know that, even if you make all your payments on time, keeping a balance greater than 50% of your limit will harm your credit? You should always aim to keep balances under 20%. And did you know that applying for credit too often can affect your credit? Every time a potential lender checks up on you, a “hard inquiry” goes on your file.
You may also not realize that never borrowing any money isn’t good for your credit history either! Creditors like to lend money to people with an established history of borrowing in moderation, paying promptly, keeping balances to less than 30% of their limits, and never letting their total monthly debt exceed about 40% of their income – and that includes your mortgage, taxes, insurance, car payments, student loans, and child support.
Your goal should be a balanced credit profile that involves a mix of revolving credit accounts and loans, and a low debt-to-income ratio.
Let’s say I made a mistake and missed a couple of payments. How long will that information stay on my credit report? So how do I fix my credit history after declaring bankruptcy or submitting a consumer proposal?
It varies by province or territory, and also by the agency. For example, a bankruptcy in Ontario stays on your history for seven years with TransUnion, six with Equifax. A debt sent to collections stays on your history for six years from the first date of delinquency.
Start by opening a secured credit card account. With a secured card, you put up a deposit equal to the credit limit, and the lender holds the money in a special savings account. It’s their guarantee that you won’t default on payments. Let’s say you want a card with a $500 credit limit. You put up $500 as a deposit, and the lender issues you a card that otherwise behaves like any other credit card. If you use it wisely, it will reflect favorably on your credit history.
Remember that keeping a balance that’s too close to your limit will adversely affect your credit history, so don’t carry over a balance greater than 30% of the limit from month to month. If you can’t pay the entire balance, make sure you make at least the minimum payment by the due date on your statement. You can ask for your own credit history as often as you like, but remember that too many inquiries by potential lenders don’t look good, so be careful about asking too many lenders for credit too often.
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What should you do now?
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- Be making one small monthly payment for all your debts
- Be free of threatening phone calls
- Be on the way to re-establishing your credit
- Reduce your debts
- Be free of wage garnishment