What can bankruptcy or a consumer proposal do to your credit score?

If you’re thinking about filing for either personal bankruptcy or a consumer proposal, you may be wondering how it will impact your credit score. The short answer is that your credit score will drop significantly, if it has not already done so.

It is important to understand is that when you file for bankruptcy, that this event will stay on your credit bureau for 6 years from the date of your discharge for a first time bankruptcy and 14 years for a second bankruptcy. A consumer proposal will stay on your credit bureau for 3 years from the date you complete all your duties under the proposal and you receive a Certificate of Full Performance.

Depending on your financial circumstances and how you use credit going forward, it can take between 2 to 5 years to rebuild your credit score.

There are ways to rebuild your credit after the bankruptcy or consumer proposal.

  1. Start by obtaining copies of your credit report and checking your report for errors. The two major credit bureaus in Canada are Equifax Canada and TransUnion. If you find an error, dispute it with the credit reporting bureau so they can remove it or correct it. Make sure to keep copies of any communication between yourself and the bureau regarding the dispute—it will help if there’s any question about whether or not it was resolved properly later on.
  2. Manage your budget and ensure that future payments are being made on time and in full or as required by the agreement you have with your creditors.
  3. Avoid NSF charges, overdrafts and late payments.
  4. Obtain a secured credit card. Ensure that it is never maxed out and is paid on time and in full every month.
  5. Do not apply at multiple sources for credit in a short period of time. The more enquiries you have on your credit bureau in a short time span will negatively impact your credit score.

A bankruptcy or a consumer proposal will have a negative impact on your credit score, but it’s not the end of the world. It is a part of the process in getting a financial fresh start.

A negative impact on your credit score will also effect your borrowing capacity. Lenders will see you as an increased credit risk and will either not lend further monies to you or you will face increases in the interest rates that you are being charged come renewal time on those loans. As more distance in time is but between the event of the bankruptcy or consumer proposal and the time of lending, the interest rates being charged will eventually come down again as your credit score increases.

If you’re considering bankruptcy or a consumer proposal, we’re here to help. We understand that these can be difficult decisions to make and we are here to help you through the process. We can help you get back on track with your finances and guide you through the process of rebuilding your credit score after bankruptcy or a consumer proposal. Book your no-cost, no strings attached consultation today at correctthedebts.com or call us at 403-836-6690.