Is a collection agency relentlessly calling you demanding payment for an old debt? If you’re…
Rebuilding your credit after a Consumer Proposal is an important step when you’re working on securing your financial future. But the road to a strong credit rating can be full of confusing twists and frustrating turns. It’s hard to get credit when your credit score is low, which makes it tricky to prove that you’re now a responsible payer.
Your Consumer Proposal and credit score don’t have to be at odds, however. There are several tools and techniques that you can use to rebuild your credit after a Consumer Proposal:
- Budgeting. Practice good budgeting so you know how much you spend.
- Establishing New Credit. Use credit cards to build credit again.
- Paying on Time. Keeping up-to-date on your bills demonstrates your ability to handle credit in the future.
With a Consumer Proposal on record, you are signalling that you have had problems in the past. Learn here how to show creditors that you’ve changed your ways and that you’re credit-worthy again. We’ll start with some of the most common questions and concerns others have had when they were first starting to learn how to build credit.
What’s the Best Way to Build Credit?
There are several ways you can build your credit score back up but the best way is to start with a sound strategy. Your credit report reflects your past behaviour with your credit cards but it doesn’t have to reflect the way you manage your money from this point on. Learning best practices for managing your credit is the best way to build credit – from the ground up.
Here are the habits you should adopt to begin rebuilding credit after a Consumer Proposal:
- Timeliness. Always pay all your bills on time from now on. No exceptions, no excuses. This goes for not just your credit cards but also your rent, your utilities, and any other payments that need to be made.
- Moderation. Once you get a new credit card, use it sparingly. Credit reports take into consideration how much credit you use compared to how much you’ve been given. A good rule of thumb is to keep it less than one-third of your credit limit.
- Focus. Don’t apply for too many credit cards at once. Focus on the ones you truly think will make a difference in your life. Too many credit applications during too short a time will have a negative effect on your credit report.
What Happens With a Consumer Proposal and Your Credit Score?
A lot of people wonder if they can even get credit cards while they’re in a Consumer Proposal. It’s a tricky question that has a complex answer so it’s best to ask a Licensed Trustee about your unique situation. There are, however, a few general “rules” that may give you a sense of what lays ahead after you file your Consumer Proposal submission in Canada.
After requesting your free credit report (see more about that below), you’ll be able to see your full credit history. One thing you’ll learn by looking at the report is that your Consumer Proposal and your credit score are directly related. That is, filing the proposal does affect your score.
Take heart, however, because the dip is only temporary. It’s important here not to focus on the problems you’ve had in the past and the effect they’re having on your credit score. Instead, think about the future and what you can do to repair the damage that’s already been done.
This is where you’ll be glad to know that there are credit cards to build credit. They’re called “secured” credit cards and you can apply for one at a financial institution that offers them. Typically, they work like this:
- Apply for the card.
- Make a security deposit in the financial institution offering the card.
- Use the card to make purchases.
- Notify the credit reporting agencies of your new card.
- Pay on time.
- Build your credit score.
Make sure you know how much it costs to have the secured card because the charges are often higher than with traditional credit cards – one of the small prices you’ll pay (for a while) as you recover from your debt problems.
What Can a Free Credit Report Do for Me?
In Canada, you are entitled to a free copy of your credit report from the two credit bureaus. It’s done by mail so if you don’t care if your free credit score takes a while, write or fax your request to Equifax or Transunion. Alternatively, you can make the request on their websites and pay a small fee for faster service.
Getting a free credit report is helpful because you can do a personal “credit check” to ensure everything on the report is correct and up-to-date.
I Need to Know How to Build Credit Fast…
The long and short of it is that rebuilding credit after a Consumer Proposal is a process – a process that takes time, dedication, and patience. Just as we’ve outlined above, you’ll need to start with a good strategy, follow best practices, do a credit check on yourself with a free credit report, and build your score back up with one of the credit cards to build credit.
One Final Word on How to Build Credit
Filing a Consumer Proposal isn’t the end of the world. It’s the first of many positive steps that you can take toward a better future. You’ve just learned how to recover from its effects on your credit rating and how to improve your credit after you file. You now know that it takes time, you should begin with a free credit report, that a secured credit card can help, and that you must use the card wisely in order to build up your credit again.
So what’s next? It might help to find out about credit counselling from a Licensed Insolvency Trustee (LIT). John Adamson is an LIT and can offer advice on how to stay on track when you’re rebuilding credit after a Consumer Proposal. Call any time!