After you have been released from your debts by completing a bankruptcy or consumer proposal, re-establishing your credit in Canada can be achieved most quickly if you follow this 6-step plan:
Complete your Insolvency ASAP
The sooner you are finished, the sooner it will disappear from your credit report. Complete all of your duties as soon as possible. (Note: In some cases you may be able to make your payments faster to help shorten your time period.)
Start Saving Money
It is a simple fact of life in Canada that banks lend money to people who don’t need it, not to people who urgently require cash. To borrow again you need to prove that you can handle money and the best way to do that is to show that you have some savings. Savings will be the foundation for your future borrowing. (Note: You can continue with the monthly payments you were making to the bankruptcy or proposal, but instead make them to your own savings account!)
Get a Copy of Your Credit Report
Equifax and TransUnion are the 2 largest credit bureaus in Canada. Contact these bureaus to get a copy of your credit report and check it for any errors. If you find any, such as debts appearing that were included in your insolvency, notify the credit bureau immediately.
Get a Secured Credit Card
Start rebuilding your credit with a secured credit card. Use your savings to place a deposit and you will then get a credit card with a similar credit limit. It shows up on your credit report as a normal credit card, and now you have a credit card for use when required.
Get an RRSP. Use more of your savings to put money in an RRSP. If you invest $1,000 in an RRSP, the bank will probably be willing to lend you another $1,000 to contribute to your RRSP. That $2,000 you contribute could generate a refund at tax time that would be almost enough to pay off your loan. Your credit report would then show a paid-off loan, which looks great on your credit report, and you’d have $2,000 invested in an RRSP.
You will soon have enough for a down payment on a car, and if you save long enough, the down payment on a house.
Credit re-establishment is possible. It may take a year or 2 of frugal living, but by saving money you can gradually regain the ability to borrow once again. Use it wisely!
Excerpts from the Bankruptcy Canada website