Bankruptcy or a consumer proposal eliminates the high unsecured debt you were carrying, which was one barrier to getting good credit. Now you are ready to rebuild a better credit profile for lenders to see when you apply for new credit. While, there are no ‘quick fixes’ to rebuild your credit, it is possible to get new loans and credit cards after a bankruptcy or proposal.
Many people make rebuilding harder than it needs to be by rushing into new credit too quickly or focusing on the wrong things. The steps below are designed to help you rebuild safely, without putting yourself back at financial risk.
NOTE: We are NOT encouraging you to get credit. If you can live without a credit card or loan, great! However, we understand that you may want a credit card for travelling, job requirements, or to make on-line purchases, so we provide advice below only for those who believe they require a credit card.
Step 1: Make Sure Your Credit Report Is Accurate
Before you apply for any new credit, you need to know what lenders will see when they look you up.
Your credit report should accurately reflect:
- That your bankruptcy or consumer proposal was filed and completed
- That debts included in your insolvency show the correct status
- That balances on included debts are no longer increasing
- That no new late payments are being reported after your filing date
Errors are common, especially after insolvency. If your credit report contains incorrect or outdated information, it can prevent you from being approved for credit — or result in higher interest rates.
This is the most important first step.
Do not apply for new credit until errors are corrected.
See:
Step 2: Consider a Secured Credit Card
After completion of your bankruptcy or after your proposal is accepted by your creditors, you can apply for a secured credit card.
A secured credit card works like a regular credit card, but it is backed by a cash deposit that you provide to the lender. For example: you give the credit card company $1,000, and they keep the $1,000 and give you a credit card with a $1,000 credit limit, Because the lender’s risk is lower, secured cards are often available to people with poor credit.
Used properly, a secured credit card can:
- Help establish new positive payment history
- Allow you to demonstrate responsible use of credit
- Increase your chances of qualifying for an unsecured card later
A word of caution:
- Secured credit card companies charge high interest on outstanding balances, so you should pay your balance in full each month (which saves you interest, and improves your credit score)
- Many also have various fees (monthly fees, annual fees, and fees for NSFs), so be aware that there is a cost to these products
- In addition to a deposit, you may be charged a one-time set-up or application fee
Based on our experience, here are three secured credit cards that are more easy to get for people in a bankruptcy or consumer proposal.
Home Trust Secured Visa
- The minimum security deposit is $500, and there are various fees.
- To apply, use the online application for the Home Trust Secured Visa Card. (You can qualify while in a consumer proposal, but you will not qualify until you are discharged from bankruptcy).
- Once approved, you will receive an email with a 7 digit account number; you will use that number to add Home Trust Visa as a bill payee on your online banking to pay the $500 security deposit.
- Once the deposit is received, a permanent account number and Visa card will be issued. The approval process takes approximately one month.
Capital One Mastercard
The application process is simple.
- Go to capitalone.ca and click the Check Your Eligibility button.
- You will be asked some verification questions (the same questions you get asked when you request a TransUnion credit report) and then they will ask for your annual income and your monthly rent.
- The computer will then determine what card you qualify for (secured or unsecured). Capital One says that applying does NOT impact your credit score.
In our experience, if you qualify for the $300 secured card, after six months they are likely to increase your limit to $500 and return your security deposit, and after 12 months if all of your payments are on time your limit may be increased to $3,000.
Specifically:
If you didn’t owe money to Capital One when you filed your bankruptcy or consumer proposal, you may qualify for a Capital One secured Mastercard. There is an annual fee of $59 (which may change at any time), but the online approval process is fast, and they may give you a card with a credit limit higher than your security deposit (so you may get a $1,000 limit with only a $500 security deposit).
Tim Horton’s Secured Mastercard
Tim Horton’s offers a secured Mastercard with no annual fee. You must pay your bill in full each month, because the annual interest rate is very high. Full details are available at Tim’s Financial.
Step 3: Build a Strong Payment History and Keep Balances Low
Once you have new credit, how you use it matters more than what you have.
The two most important factors in rebuilding credit are:
- Payment history
- Credit utilization
To protect and improve your credit:
- Always pay every bill on time
- Set up automatic payments where possible
- Keep credit card balances well below the credit limit (we recommend you never carry a balance above 30% of your credit limit)
- Pay credit cards in full every month whenever possible (or more often to keep your utilization rate low)
High balances relative to your limit can lower your credit score even if you make payments on time. Credit cards should be treated as a method of payment — not a way to finance everyday living expenses.
See: What Helps – and What Hurts
Step 4: Consider Changing Cell Phone Companies
Not all cellphone companies report to the credit bureaus. Check your credit report to see if your cell phone provider appears there. If it does not, and it makes financial sense (you will save money), consider switching to a low cost provider who does report to credit bureaus.
Step 5: Apply For An Unsecured Credit Card
An unsecured credit card is an important milestone in credit rebuilding because it shows lenders are willing to extend credit without a cash deposit.
In general, we recommend:
- Waiting until you are discharged from bankruptcy or have completed your consumer proposal before applying for an unsecured card
- Allowing some time to pass after establishing a secured card or other positive activity
- Applying for one unsecured card at a time
Waiting until after discharge or proposal completion usually maximizes the credit-rebuilding benefit of an unsecured card. Applying too early, or applying for multiple cards at once, can result in denials and unnecessary damage to your credit profile.
The goal is not approval at any cost — it is approval at the right time.
Capital One Unsecured Mastercard
You may qualify for a Capital One Unsecured Mastercard immediately after filing a consumer proposal or bankruptcy. Limit your applications as too many applications and too many credit cards will lower your credit score. Set your limit low to avoid the temptation of racking up new credit card debt. If you didn’t owe money to Capital One when you filed your bankruptcy or consumer proposal, you may qualify for a Capital One unsecured Mastercard. Again, use this card wisely and pay all balances in full each month.
Step 6: Apply For A Small Term Loan
One you have established a good payment history on your credit cards (again this will take 6-12 months or more), consider applying for a small term loan. This can be a bank loan, RRSP loan or even a car loan.
If you are unable to qualify for a new loan on your own, you can ask someone to co-sign your application. Be aware however that if you default, you will be risking the credit profile of your co-signer and they will be held liable for payments you don’t make.
Some tips:
- Don’t take on more debt than you can repay. Risking late payments or missed payments will set back your efforts to re-establish your credit.
- Confirm with your lender that this loan will be reported to the credit bureaus.
- Don’t apply too often. If you are turned down, wait another 6 months or more.
Step 7: Set Aside Money For A Down Payment
Savings do not appear on your credit report, but they play a critical role in using credit in a way that helps your credit rebuilding process.
Having a down payment:
- Improves your chances of being approved for future loans
- Can result in lower interest rates
- Reduces how much you need to borrow
- Lowers the risk of financial stress if something unexpected happens
Whether your goal is a vehicle, housing, or long-term stability, saving alongside credit rebuilding helps ensure that new credit strengthens your finances instead of becoming a setback.
See: Building Wealth
A Final Thought on Credit Rebuilding
Credit rebuilding is not about how fast you can get approved — it’s about building a track record you can maintain.
Take each step when it makes sense for your situation. Slow, steady progress is far more effective than quick fixes.