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Getting Credit after Bankruptcy or a Proposal or a Credit Counselling Debt Repayment Program.
Updated for the July, 2011 changes in reporting by Equifax and TransUnion.
If you follow the steps provided here you will be able to begin rebuilding your credit rating in the quickest possible time. You will be able to get a secured credit card and a car loan shortly after you are discharged.
Any discharged bankrupt will be able to get a mortgage - the hardest credit to secure - at an interest rate comparable, or better, than a person who has never gone bankrupt.
These are the steps we are going to cover:
Step 1 -
Get your Bankruptcy Discharge or the Certificate of Completion for your Consumer Proposal or Division I Proposal.
Step 2 -
Clean up your credit. Check your credit report and write to the credit bureau to correct any errors.
Step 3 -
Gain New Credit. You now have to acquire new credit to prove your credit worthiness. A good place to start is with a secured credit card. Getting a secured card, at the link we will provide, is virtually guaranteed. You should also get other credit such as a loan for an RRSP, a car loan etc.
Step 4 -
Accumulate your Down Payment. The minimum down payment is 5% with a mortgage guaranteed by CMHC. To qualify for this mortgage you must have been discharged for at least two years and one day and have at least one year of re-established credit. On July 9, 2012 the maximum length of insured (CMHC) mortgages was set to 25 years from 30 years.
Step 5 -
Contact a Mortgage Professional who is experienced at helping people, who were in bankruptcy or faced other financial challenges, get a mortgage.
Step 1 - Get your Bankruptcy Discharge or the Certificate of Completion for your Consumer Proposal or Division I Proposal.
After you have filed for bankruptcy or a proposal, you will need to follow your trustee's directions on how to gain your Absolute Discharge or Certificate of Completion.
If you have not gained your Absolute Discharge or Certification of Completion, it is impossible to gain any form of borrowing, even with private lenders. Attempting to gain financing before your discharge is futile.
When you have completed this step you can go on to step 2
Step 2 - Clean up your credit.
Check your credit report and write to the credit bureau to correct any errors.
Never pay anyone to clean up your credit report. Do it yourself following our detailed steps.
The Office of the Superintendant of Bankruptcy will update Equifax and TransUnion of the fact of your discharge from bankruptcy.
The credit bureaus will correct mistakes on your credit report. They will not remove information that is correct.
Now that you have your Absolute Discharge, you need to clean up your credit score, or ensure that it is clean already. It is very common to see multiple errors on credit scores. Once you are discharged your existing balances should be marked as included in bankruptcy
Check your Credit Report to see if you have to correct errors.
Note: A credit card in your name is required to place these orders. You can pay for Equifax's report online and have it instantly. Note that the online report costing $23.95 includes your credit report and your credit score.
The online report costing $15.50 only includes your credit report.
You can pay for TransUnion's report online and have it instantly.
Correcting Errors on EQUIFAX
- Use the online dispute method; or
- Use the Equifax form, which you fill out online. You would use this form if you are disputing bankruptcy or proposal related items. Don't forget to include copies of your Discharge Certificate or Certificate of Full Performance of your proposal, and the List of Creditors and all other relevant documents.
Correcting Errors on TRANSUNION:
- Use the TransUnion form
- Full name
- Current address
- Previous address (if less than two years at current address)
- Date of birth
- Social Insurance Number (optional)
- Employment information (optional)
- Telephone number (optional)
- Name of the company you have a dispute with (from your credit report)
- Account number, if available, of the disputed item (from your credit report)
- Reason for your dispute (e.g., you have paid the account, etc.)
- Documentation to support the amendment you have requested. If the amendments are to your personal information (e.g., name), please provide supporting identification documentation, such as change of name certificate, marriage certificate, etc.
If you are still not satisfied that your file is correct:
- You may wish to contact your provincial / territorial regulator responsible for consumer affairs (as credit reporting agencies falls under provincial / territorial jurisdiction).
- You can also contact the Federal Privacy Commissioner (except in the case of Quebec, B.C. and Alberta where you should contact the Provincial Privacy Commissioner). The Personal Information Protection and Electronic Documents Act ("Personal Information Protection and Electronic Documents Act"(PIPEDA) also sets out ground rules for how private sector organizations can collect, use or disclose personal information in the course of commercial activities. Under "Personal Information Protection and Electronic Documents Act" PIPEDA individuals have a right to see the personal information that a business holds about them, to correct any inaccuracies and to lodge a complaint with the Privacy Commissioner of Canada if they are unhappy with how an organization is handling their information.
Please note: If the incorrect information comes from a federally regulated financial institution, the Financial Consumer Agency of Canada ("Financial Consumer Agency of Canada" FCAC) website provides additional information on how to get errors corrected.
When you have completed this step you can go on to step 3
Step 3 - Gain New Credit.
Re-Established Credit has to be New Credit
It is new credit you gain after your discharge that increases your credit score and indicates to lenders that you are able to handle credit responsibly.
Be careful and make all your payments on time! It is also crucial that you do not use more than 75% (50% is better) of your available credit. So, for example, If you get a credit card with a limit of $1,000.00 don't charge more than $750.00 and pay the $750.00 back when due. Never miss a payment!
Using a secured credit card is a quick way to rebuild your credit rating. Peoples Trust reports your payment history to the credit bureaus each month. As you make regular payments your credit history looks better and better.
Not all Secured credit cards report your payments to the credit bureau. If your payments are not reported then you will not be increasing your credit score and you will not have re-established credit.
After You obtain the secured card you should do the following:
RAISE YOUR SCORE: You want to get your FICO score back up to about 700 or higher, because then you can qualify for a mortgage.
You can check your FICO credit score every four months or so to measure how you are doing. When you check your own credit score it does not adversely affect your credit score. If you are making multiple credit applications and creditors are checking your credit score this will have a negative effect of your credit score.
FICO scores are just guidelines, and don't mean that you cannot be approved even if your FICO score is low. There are other factors that can affect lending decisions based on credit worthiness. Some factors that might persuade a lender to be more lenient towards granting a loan to a borrower with a lower FICO score include:
- A larger down payment
- Low debt-to-income ratios
- Excellent money saving history
- Reasonable explanations for negative items on a credit history
2) INCREASE YOUR LIMIT: If you start off with the minimum $500 limit, you will want to increase your limit on your card using this form to show that you can handle a higher limit.
A $1,500 or $2,000 limit is better than a $500 limit as it shows more responsibility. You will find that after 12 - 18 months of responsible credit card use you will qualify for an unsecured credit card.
What is a Good Form of Credit To Gain After Bankruptcy?
Any credit is good credit so long as the payment record and fact of the debt is reported to the credit bureau. A secured credit card is one of the most cost effective ways to rebuild your credit. Other debt such as auto loans and RRSP loans are also popular.
CMHC only needs one form of re-established credit for 12 months after bankruptcy, but Genworth, CMHC's competitor, asks for 2 forms of credit for a minimum of 24 months after bankruptcy.
Here are some After Bankruptcy Lenders who will give careful consideration to lending you money, knowing you have been in bankruptcy:
When you have completed this step you can go on to step 4
Step 4 - Accumulate your Down Payment.
The minimum down payment is 5% with a mortgage guaranteed by CMHC. To qualify for this mortgage you must have been discharged from bankruptcy for at least two years and one day and have at least one year of re-established credit.
Canadian Mortgage and Housing Corporation (CMHC) provides the following requirements to qualify for homeowner mortgage loan insurance.
- The home is located in Canada.
- You will typically have a down payment of at least 5% of the purchase price of the dwelling, depending on the dwelling type.
- Single-family and two-unit dwellings (5% minimum down payment)
- Three- or four-unit dwellings (10% minimum down payment)
- Normally, the minimum down payment comes from your own resources. However, a gift of a down payment from an immediate relative is acceptable for dwellings of 1 to 4 units. For eligible borrowers, additional sources of down payment, such as lender incentives and borrowed funds, are also permitted. Check with your lender for qualifying criteria and availability.
- Your total monthly housing costs, including Principal, Interest, property Taxes, Heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, shouldn’t represent more than 32% of your gross household income (Gross Debt Service (GDS) ratio).
- Your total debt load shouldn’t be more than 40% of your gross household income. The Total Debt Service (TDS) ratio is your P.I.T.H. + the annual site lease in the case of leasehold tenure and 50% of condominium fees (if applicable) + payments on all other debt / gross annual household income.
- You also need to think about closing costs (for example, legal and land transfer fees) equivalent to 1.5% to 4% of the purchase price. Many first-time buyers are surprised by these costs.
- Closing costs include but are not limited to one-time items such as lawyer fees, GST and PST as applicable, land transfer tax if applicable, adjustments, etc., to allow you to complete the house purchase.
When you have completed this step you can go on to step 5
Step 5 - Contact a Mortgage Professional who is experienced at helping people, who were in bankruptcy, filed a proposal or a consumer counselling debt program, get a mortgage.
Caution, if you plan on going to your local bank for a mortgage!
First they probably don't know the rules on getting you a mortgage at the best rates possible. Second they are likely to turn your mortgage application down. Worst yet, you may find yourself locked into a poor mortgage that will cost you thousands of dollars more than by using an experienced mortgage professionals.
Mortgage professionals will get you a mortgage at the same interest rate, as the most credit worthy person who has never been in bankruptcy. You will pay nothing for the services of a mortgage professional.
You can find experienced mortgage professionals, who are used to working at getting mortgages for people, who have recently been discharge from bankruptcy or have completed a consumer or other proposal, at the following link: