Bankruptcy will affect your credit rating. The precise impact can vary from case-to-case, depending upon a number of factors such as your specific amount of debt and your previous credit rating. The team at Fuller Landau will be happy to review your personal situation and explain the potential impact of Bankruptcy on your credit score.
The Credit Rating System
The credit scoring system in Canada assigns each individual with an R-based rating based upon recent credit history. Consistently making late payments will lower your R-rating, while consistently making payments on time will raise it.
The ratings break down as follows:
- R0. Too new to rate. This rating is reserved for those who have never needed to use credit.
- R1. Makes required credit payments within 30 days of due date.
- R2. Makes required credit payments between 30-60 days of due date.
- R3. Makes required credit payments between 60-90 days of due date.
- R4. Makes required credit payments between 90-120 days of due date, or consistently makes payments past the due dates.
- R5. Outstanding credit is 120 days overdue, but is not yet an R9.
- R6. Not used.
- R7. Making regular payments through a Consumer Proposal to settle debts. This rating stays for 3 years after the final payment of the Consumer Proposal is complete.
- R8. Creditors have resorted to repossession to collect outstanding debts.
- R9. Worst credit risk. May have moved without giving a new address to avoid creditors and collections, may have been placed for collection, may have overwhelming outstanding debt, or may have previously filed for Bankruptcy.
Your credit score is a three-digit number that takes a number of factors into consideration, but is largely dictated by your R-based credit rating.
Bankruptcy and Credit Scores
When you file for Bankruptcy, your credit rating will be an R9 for 7 years after you’ve completed your final Bankruptcy payment. If this isn’t your first Bankruptcy, your credit rating will be listed for at least 14 years after your final Bankruptcy payment.
After the Bankruptcy has been removed from your record, your rating reverts to the standard system.
Rebuilding your Credit Score
The rebuilding process can begin even before you have been discharged of your debts.
To Do Immediately
Open a bank account at a bank where you have no debt. By making all ongoing payments on time, and by applying the lessons learned in the mandatory credit counselling sessions, you can lay down a framework for recovery, build good debt management habits, and begin to restore goodwill with creditors.
After Your Final Bankruptcy Payment
Once you have been discharged from your Bankruptcy, you’ll receive a letter of discharge as proof that your Bankruptcy period is over. Send copies of these to the two leading credit bureaus as soon as possible. Your Licensed Insolvency Trustee cannot do this on your behalf, but it’s an extremely important step as it ensures that the countdown to the release from your R9 rating is started.
Once you’re comfortable with managing credit again, it may be advisable to acquire a secured credit card. Secured cards require a deposit to be left with the lending institution to ensure repayment, but possession of this card will give you the opportunity to use the card and repay quickly, demonstrating that you’re able to responsibly manage your debt.
The Quick and Easy Credit Fix
Restoring your credit can take time. Beware of anyone who claims to have a ‘silver bullet’ that will fast-track the road to good credit.
A Responsible Route to Good Credit
Our advisors and trustees at Fuller Landau can help make sure your credit doesn’t suffer more than necessary as a result of your financial troubles. Contact us today for a free consultation.