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Your Credit Score In (and Out of) Bankruptcy

Your Credit Score In (And Out Of) Bankruptcy

Are you worried about your credit score? And are you at the point where your debts are so overwhelming that you need to file for protection from your creditors? The not-so-great news? It’s quite likely your credit has already been affected by your financial problems. It’s also likely your creditors will be hesitant to advance you additional credit, due to your damaged repayment history and low credit score.

What Is A Credit Report? And How Is It Created And Maintained?

credit score after bankruptcy

Everyone’s credit (spending and repayment) history is recorded in files maintained by at least one of Canada’s major private credit-reporting agencies, either Equifax Canada and/or TransUnion Canada. These files are called credit reports. A credit report is a “snapshot” of your credit history. Your credit rating can range from R1 (excellent) to R4 (not so good) to R7 or R9 (bad credit risk).

Each time you are late with a payment to one of your creditors, there will be a negative impact on your credit rating. Repeatedly being late with payments will drive down your credit rating to the point where creditors could refuse to extend you additional, or new, credit.

Deciding to file for protection from your creditors through a Licensed Insolvency Trustee will not magically restore your credit rating to an R1 (the best credit score you can have) when your Bankruptcy is complete: the Bankruptcy will remain on your credit report for a total of 7 years before it is removed by the credit bureau). But the alternative scenario is one in which you do nothing to fix your debt problems – this could easily result in your credit rating continuing to suffer indefinitely (quite possibly for much longer than seven years). Once your Bankruptcy is discharged, you can begin to rebuild your credit by building up a history of on-time payments.

A List Of R-Based Credit Ratings, From R0 to R9:

R0 Too new to rate; approved but not used.
R1 Pays (or paid) within 30 days of payment due date or not over one payment past due.
R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due.
R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due.
R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
R5 Account is at least 120 days overdue, but is not yet rated “9”.
R6 This rating does not exist.
R7 Making regular payments through a special arrangement to settle your debts.
R8 Repossession (voluntary or involuntary return of merchandise).
R9 Bad debt; placed for collection; moved without giving a new address or bankruptcy.
Other rating indicators that might be found on a report are “I” for installment credit or “O” for open credit line.

Source: Equifax Canada

Get The Debt Help You Need

Are you ready to repair your poor credit? Get the help you need today by filing for protection from your creditors. By doing so you can kick-start the financial healing process you desperately need. A one-hour, free, confidential consultation with one of our Debt Professionals could be the best decision you ever make. And one that can help restore that valuable credit rating to an R1.

You can reach us at (844) 507-7526 or fill in the form below. We have 50+ offices are located across Ontario, so there is sure to be an office close to where you live or work.

credit score after bankruptcyBegin To Rebuild Your Credit Score

Once your credit reports have been updated, contact both of the credit bureaus and request a free copy of the reports (you are, by law, entitled to one free copy per year). Review the reports carefully to ensure no errors exist. If they do, mail or fax a request to have anything on the report that appears to be an error to the credit bureau that has the incorrect listing. They have 30 days to investigate your concerns. If they cannot determine the validity of an error once the 30-day time frame has passed, then they are legally obliged to remove the item from your credit report.

For more information, please read the article How To Improve Your Credit Score.

How Long Does The Bankruptcy Stay On My Credit Score?

Many people ask us: “How many years does it take until my credit is repaired and my old, discharged, debts are wiped off the credit report?

Your credit rating will reflect your bankruptcy filing for six years after you are discharged from the bankruptcy process (for a grand total of approximately seven years, until the credit report wipes clean your old debts).

A second-time bankrupt has a slightly longer wait time before the credit rating will be cleared of old debts. The credit reporting agencies will normally list the second bankruptcy (and associated debts) for twelve years after someone is discharged from the bankruptcy process.

The first thing you should do after receiving your Bankruptcy Discharge Certificate (which is normally mailed out to you within approximately 30 days from the date your discharge takes effect), is to notify both national credit bureaus of your change of status. Mail or fax a copy of your discharge to both Equifax and TransUnion to notify them you are now discharged from your debts. They will then update your credit report to confirm your debts are discharged.

Your Insolvency Trustee is not able to contact the credit bureaus for you – this will be your first financial responsibility upon being discharged, and it’s an important step on the road to good credit.

The Benefits Of A Secured Credit Card

Once you are comfortable with how your credit looks, it may be time to arrange for a secured credit card, if you are comfortable with once again using credit. There are a number of firms that offer such cards, including your own bank or credit union.

Once you are discharged from your Bankruptcy (and effectively “debt free”), there will be creditors eager to do business with you. See if you can obtain a secured credit card (it requires a deposit to be left with the lending institution while you use the card), and ensure the card you obtain reports your credit history to the credit bureau.

There’s No Quick Credit Report Fix

Caution! Beware of any company that promises to help you “fix” or clear up your credit score for a fee. Only your creditors are able to alter your credit information – you do not need to pay a third party to repair or make changes to your credit report. Anyone who promises to magically repair your credit rating is not being completely honest with you.

If unsure of how to proceed, please call us toll-free at (844) 507-7526 or fill in the form below and we will discuss all of your available debt options with you. No magic required.