By François Noël, MBA, CIRP, LIT
Credit is a double-edged sword. You need to know how to use it carefully.
Credit is a practical means by which to purchase a house or car, help out in emergency situations, and purchase things online as well as everyday items without having to carry cash. But if your monthly payments get too high, you may end up having a hard time paying for basic things such as rent and groceries.
If you need to borrow money, limit yourself to what you really need, even if your financial institution offers you more at an attractive rate. When you have access to more credit than you need, it’s easy to get used to living above your means.
To convince financial institutions that you are willing and able to pay back your credit, you need to earn their trust. Financial institutions usually ask three questions before lending money:
- Are you able to pay it back?
- Do you have a steady job?
- What is your credit rating?
Your credit rating is an indication of your willingness and ability to pay back borrowed money.
Your credit file contains information about previous credit requests, such as the amount requested and repayment terms. It also includes a credit rating that indicates whether or not you are good at repaying your credit.
This rating ranges from R1 (excellent) to R9 ( individuals in bankruptcy or collections process). The R7 rating is for individuals performing a consumer proposal. Clearly, you will have a hard time obtaining credit with an R7 or R9 rating.
A note will appear in your credit file for;
- Three years after the end of your payments for consumer proposals.
- Six years as of your discharge in the case of a first bankruptcy.
- Fourteen years as of your discharge in the case of a second bankruptcy.
You can access your credit file by submitting a request through the mail or internet. When you receive your file, verify all of the information. If there are any mistakes, get them corrected by sending proof. A mistake in your file can mean you’ll always be refused credit, despite your best efforts.
Rebuild your credit on solid ground.
Unfortunately, there is no miracle cure. Only time and good payment habits can improve your credit file. But if you make the required effort, you will likely find an institution willing to lend you money.
Here are few tips for rebuilding your credit file:
- You must have a stable place of residence.
- Have a stable employment.
- Make a budget and stick to it.
- Open a savings account and save regularly.
- Once you are discharged, request a $500$ credit card by offering a $500$ But avoid requesting more than one credit card, as doing so will be an area of concern for future lenders
- Never max out your credit card. You need to be able to pay your entire balance every month.
- Borrow a small amount by pledging saved money as security
Make sure you understand what has happened, as that will help you start over on the right foot. Even with the keenest of financial advisors and best intentions in the world, if the root cause of your money problems is still there, it won’t be long before your issues resurface. Get to the bottom of these causes and deal with them; you’ll ensure a better financial – and personal – future for yourself.
Thankfully, you are not alone. Your advisor can guide you, with total confidentiality, towards resources that will help you get out of your financial troubles for once and for all.
If you think you’re worried that your credit has become too much too handle, consider talking to a Licensed Insolvency Trustee (LIT). They are Canada’s go-to professionals when you need help with debt problems. They’re licensed by the federal government and the first consultation with an LIT is always free.
You can find an LIT near you who is a Certified Insolvency and Restructuring Professional (CIRP) on CAIRP’s website: http://www.cairp.ca/find-a-cirp.
François Noel, MBA, CIRP, LIT , has over 35 years of professional experience at Raymond Chabot, counsellors in financial recovery.