Bankruptcy may seem like the end of the world to many. It’s definitely a tough step to take but it can prove to be an effective one. One of the biggest obstacles people face after they’ve filed for bankruptcy is to qualify for future loans. GTA Credit Solutions will explain how you can qualify for a loan after bankruptcy below:
The Effect of Bankruptcy on Credit Reports:
The declaration of bankruptcy will play a factor in your credit reports for years to come. With that in mind Canada’s top credit bureaus, Equifax and TransUnion will have you highlighted for bankruptcy on their reports. Both companies will have this in effect for years to come. For example, Equifax will keep this information relevant for six years and TransUnion will keep it for seven years after your discharge. It is also important to note that if you are someone who filed bankruptcy twice, that information will be relevant for a time period that is doubled to the one mentioned above.
How Come Bankruptcy Reflects On My Loans?
When lending out money, banks need to collect certain information that will assure them that the client they are lending to will be able to return the loan on timely payments when they are due. This decision becomes easier when they are able to view these reports on your credit scores. The range of credit scores varies between 300 to 850 and the information on the report will also provide your personal finances, which ultimately helps them make their decision.
Bankruptcy will most likely lower your credit score. Below are listed FICO score categories. A quick background on the FICO score: It was created by the Fair Isaac Corporation (FICO). Lenders use borrowers’ FICO scores along with other details on borrowers’ credit reports to assess credit risk and determine whether to extend credit. See information below
800 – Exceptional and well above average. Demonstrates to lenders that you’re an exceptional borrower.
740-799 – Very good and above average. Demonstrates to the lender that you’re a very dependable borrower.
670-739 – Good, nearly or slightly above average. Most lenders will consider this a good score.
580-669 – Fair, below average. Many lenders will approve loans.
<580 – Poor, well below average. Demonstrates to lenders that you’re a risky borrower
It is estimated that the average credit score of a Canadian is precisely around 600. Your credit score can be different for every credit bureau, so if you do see different numbers do not be surprised.
The bottom line is you will be looked at by banks and other lending sources as a lending risk when your score is below average and you have a highlighted bankruptcy. You can expect the following: fewer lending options, high interest rates to go along with rules like increased down payment requirements, or strict repayment rules that you will have to abide by. It is also important to note that you can be seen as a huge risk to a lender and they may refuse to turn you down even if other criteria are met.
What Can I Do?
You should never be discouraged and give up. Regardless of how tough it is to acquire a loan or how bankruptcy stays on your report for years, you must remember that your credit rating doesn’t remain the same. Working on other factors to improve your credit status can be helpful. By putting in the work to improve that number you also increase your chances of acquiring loans when required.
Stay on Top of Your Report
Always stay on top of your credit report. Just looking at your score alone is not enough. You should read through the entire report because you may be able to spot a mistake that is currently affecting your credit in a negative way. If that seems to be the case, you should report that promptly because even the slightest change can make the biggest difference.
Keep An Eye Out For Some Of These Pieces Of Information:
1) Personal Information: view your name, current address, employment, and such to see if those are the correct pieces of information.
2) Payment History: check this to see if you made a payment that has not been recorded within the report and is still showing as of late or unpaid.
3) Wrong Accounts: check this to see if you have accounts that are still showing up as relevant that you may have closed. You should also check for accounts that you’ve opened and are not listed on the report.
Spotting even the smallest mistake may impact your credit report in a huge way. Always stay on top of this.
If you do spot any mistakes you should immediately file a dispute with the credit bureau with the incorrect information. Below are steps on how to do that:
1) Fill out a Credit Report Update Form and in there you must provide copies of legal identification.
2) Mail or fax this information to the credit company’s address.
3) Waiting period as they will open up an investigation into your matter.
4) In a few weeks, they will have sent to you a summary of their investigation. Now depending on that whether you are right or wrong, you will see that reflect in your latest report.
An important thing to remember as well that if you spot several mistakes you should refrain from filing a report. A report that is not reflective of your actions could be showing you that you are in fact being involved in an illegal financial theft or fraud scheme. Inform your bank immediately if this is the case and then proceed to contact the police as well the credit institution to make them aware of the situation.
Consolidation Helps
Credit counseling services will always be a great help. They will help you understand how to rebuild your credit for the future with ways like budgeting your finances, managing your debt, and using your credit in the most appropriate way. You’ll be gaining knowledge like not overspending and putting payments on your credit card that are unnecessary, cutting down your debt so that you aren’t impacted by late fees or stocking up interests and how to use your credit card so that you are never in a situation where that card is at its limit ever again.
Effective steps like these will be reflected on your report and seeing this frequently will definitely be a sign of encouragement. With the information provided, you will see a change and will be able to achieve a higher rating on your credit report.
Use Your Card:
Many people will refrain from using their credit cards again. Sometimes it’s stored away or simply gets tossed out. This is not a good step, the reason being that you cannot build your credit back up by not using your credit card. Use it and follow the steps given to you by your credit counselor and be on your way to raising that credit score.
Do not overuse your card at the same time. Put purchases that you know you can pay off. Small purchases are the best way to go. Pay it on time and don’t let your expenses build-up or gather up in interest and this way you will be on your way to improving your score.
Refrain From Getting Another Card:
A new credit card does not equal a fresh start. Keep this in mind and don’t opt for another credit card. Having this may only increase financial problems and isn’t beneficial when your focus is to improve your credit. Use the card you already have and try to bring your balance down to zero. Are you someone who has several cards and are nearly all maxed out? Bring it down with reasonable payments and turn your focus towards the one with the highest interests.
New credit cards also require a credit check provided when you give in your application. The more credit checks you do the more it will damage your score. To avoid this refrain from creating a new credit account. Get your credit checks treated a single check by getting quotes for large financial investments from lenders within two weeks rather than over multiple months. What this does is it because it’s within a certain time; those multiple checks will be viewed as a single check.
Apply These Changes Immediately
1) Start by paying your bills on time and make it a regular habit. With the advantages of technology now, there should be no excuses. Automatic payments are a great way to be on top of your bills!
2) No more minimum payments. Make it a full payment or try your best to make it close. This will be rewarding in the long run.
3) Always keep the balance low. Use 35% if you can of your credit and this will make a change to your rating. It will also keep you far away from overspending and maximizing your credit card.
4) Seek help from professionals. They can guide you through the bankruptcy process and will help you understand the ins and outs of improving your credit situation.
Be Cautious of Loans
Obtaining loans for a house or purchasing a vehicle will be hard until your credit score reaches the required rating. People will apply for high-interest loans at this time from other lenders but this is the wrong move. Sure it will feel great once you receive it, however; you will soon realize how much of a headache this can be. High-interest rates will make it harder for you to bring yourself back to an ideal credit situation. The key is to be patient. Define how you change your financial habits and yes it is a long process but it is one process that will take you to your goal of achieving a self-efficient credit rating.
Achieve financial loans by taking these steps into consideration and avoid burdening yourself with high-interest loans which only proves to be a shortcut at the end of the day with a long-term negative effect. Qualify for loans the appropriate way and that bankruptcy recovery will feel better!
