Declaring bankruptcy may be a difficult yet important step to take when your finances are in turmoil. But another challenging part of bankruptcy is rebuilding your credit scores after you’ve been discharged. Moreover, how long does bankruptcy stay on your credit report in Canada and when can you start rebuilding?
The good news is that there are things you can do and products you can use to give your credit scores a boost after your bankruptcy.
How Long Does Bankruptcy Stay On Your Credit Report In Canada?
A bankruptcy will remain on your credit report for 6 or 7 years after the bankruptcy is discharged – depending on the credit bureau and the province – and potentially longer if this is not your first bankruptcy.
More specifically, Equifax and TransUnion will remove a first bankruptcy from your credit report after 6 years following discharge (TransUnion will remove a bankruptcy after 7 years in Ontario, Quebec, New Brunswick, Newfoundland and Labrador, and PEI).
| How Long Does Bankruptcy Stay On Your Credit Report: Equifax | How Long Does Bankruptcy Stay On Your Credit Report: TransUnion | |
| Ontario | 6 | 7 |
| Quebec | 6 | 7 |
| British Columbia | 6 | 6 |
| Alberta | 6 | 6 |
| Manitoba | 6 | 6 |
| Newfoundland and Labrador | 6 | 7 |
| Saskatchewan | 6 | 6 |
| Nova Scotia | 6 | 6 |
| Prince Edward Island | 6 | 7 |
| New Brunswick | 6 | 7 |
How Long Do Second Bankruptcies Stay On Your Credit Report In Canada?
For second bankruptcies, your credit report will reflect the R9 rating and will remain on your credit report for 14 years.
How Does Bankruptcy Affect Your Credit?
Bankruptcy should always be a last resort when you’re having financial troubles because it will have the most significant effect on your credit compared to other debt relief solutions.
When you file for bankruptcy, your credit report will reflect an R9 rating. Filing for bankruptcy will also likely drop your credit score to the lowest level.
During this time, lenders will be able to see this note on your credit report and consider you a high-risk borrower. As such, it will be nearly impossible to get approved for loans until the R9 rating is removed from your credit report and you’ve taken steps to rebuild your credit.
How Long Does It Take To Rebuild Credit After Bankruptcy In Canada?
There isn’t a specific time frame within which your credit score will improve after bankruptcy. It all comes down to the steps you take to rebuild your credit and the credit scoring model used to calculate your credit scores.
However, some say it can take anywhere from a year or two for your credit score to improve after bankruptcy.
How To Rebuild Credit After Bankruptcy Canada
Building back good credit after filing for bankruptcy can be tough, especially when traditional financial products are out of reach. But there are a few helpful ways to rebuild your credit scores after bankruptcy in Canada, including the following.
Get A Secured Credit Card
Making timely payments on your credit card is a great way to help build your payment history which can help build your credit. But after bankruptcy, it’s nearly impossible to get approved for a traditional credit card.
Luckily, you can use a secured credit card the same way as a regular credit card to help rebuild your credit following bankruptcy. Secured credit cards are easier to get approved for and strong credit is typically not required. With a secured credit card, you make a deposit and get a credit limit of the same amount. Your deposit secures the credit card.
By using your secured credit card responsibility, you can steadily build a positive payment history which can positively impact your credit scores.
Best Secured Credit Cards In Canada
| Annual Fee | Interest Rates | Min. Deposit | |
| Neo CardTM (Secured) | $0 | – 19.99% – 29.99% – QC: 19.99% – 24.99% | $50 |
| Home Trust Secured Visa Card | 0$ or $59 | – 19.99% (no annual fee) – 14.9% (with annual fee) | $500 |
| Capital One Guaranteed Secured Mastercard | $59 | 19.8% | $75 |
Use A Savings Loan
A savings loan is meant to help you accumulate savings while building a healthy credit score. Even with a poor credit score and bankruptcy in your history, you can qualify for a savings loan to help rebuild your credit and end up with a healthy financial nest egg.
With a savings loan, your lender holds funds in a secured account in your name, and then you make regular monthly payments until the loan is paid off in full. Once you’ve completed your payments, the lender will release the funds back to you minus any interest and fees.
With every timely payment made and reported to the credit bureaus, your credit score will gradually grow. At the same time, you’re helping to increase your savings.
Use Credit Building Products Like KOHO
Canadians have an increasing number of unique credit-building products to choose from, including KOHO’s subscription-based credit-building program. For a small fee, KOHO will open a line of credit for you and use your subscription payments to report to the credit bureau(s). Each payment will help you build your payment history which can positively affect your credit scores.
To be eligible for the KOHO credit building program, you’ll first need to open a free KOHO full-service account. With this KOHO account, you’ll not only be able to subscribe to the credit building program, but you’ll also be able to earn cash back on groceries, bills, and other services when you spend using the KOHO account.
Become An Authorized User
As an authorized user on a credit card, you’ll have a card in your name that’s attached to someone else’s account, not yours. The primary cardholder permits you to use the credit card. You won’t have the responsibility of repaying the card.
You can use the credit card as you would if the account was solely yours, without the need to qualify for a card on your own.
Before becoming an authorized user, make sure the primary user is responsible and makes their payments on time. Furthermore, double-check that the credit card company reports payments on both your credit reports.
Get A Cell Phone Contract
Some cell phone companies report bill payments to the credit bureaus. This means if you make your cell phone payments on time every month, you’ll be steadily building a positive payment history, which is a common factor used to calculate credit scores.
When you apply for a cell phone contract, make sure the provider reports payments to the credit bureaus. If not, you won’t see any changes to your score.
Habits To Help Rebuild Your Credit After Bankruptcy
After your bankruptcy has been discharged, start making smart financial moves right away to help rebuild your credit. Here are a few healthy habits to adopt:
Keep Tabs On Your Credit Score
Filing for bankruptcy can negatively affect your credit. But once your bankruptcy ends, you can start rebuilding your score. When you do, monitor your credit score regularly to make sure it’s going in the right direction.
You also want to verify that your credit report shows that your bankruptcy has been discharged. If not, your score could be unfairly affected.
Further, look for signs of inaccurate account statuses, fraudulent credit applications, and judgments that you never had anything to do with.
Improve Your Spending Habits
Excessive spending is likely what caused your debt issues in the first place, so you want to adjust these habits. Keep these points in mind to better your money management skills:
- Keep your credit utilization ratio low. Don’t spend close to your credit limit on your credit card. Your credit utilization ratio generally plays a key role in your credit score calculation, so try not to spend any more than 30% of your limit.
- Make on-time payments. Payment history is a common factor that can affect your credit scores, so always make sure that your bills are paid by their due date. Even one missed payment can be bad news for your score.
- Create a budget. Having a budget in place will help you keep your finances in order. Knowing exactly how much money is coming in versus what’s going out will give you a clear idea of how much you have left over to spend on non-essential items.
Avoid NSF Fees And Overdrafts
Be mindful of how much money you have in your bank account relative to what you’re spending. If you overdraw on the account or write a cheque for more than what’s in your account, this could cause issues with your account standing and lead to high NSF and overdraft charges.
Keep tabs on your account balances. This is easy with online and mobile banking. Just log in to your account from your device to see where things stand before making a purchase.
Avoid Too Many Credit Applications
Applying for too many loans or credit products within a short time frame could be bad for your credit score. Each time you apply for a loan, the lender will conduct a “hard check” on your credit report, which can pull your score down. Moreover, when a lender sees that you apply for loans often, they may consider you a risk and be hesitant to extend a loan to you.
Try to space out your loan applications by at least 6 months to avoid any potential issues and keep your credit score in check.
Final Thoughts
Of all debt relief solutions available, bankruptcy has the worst effect on your credit. It takes time and effort to build a healthy credit score. Fortunately, it’s possible to repair your credit after bankruptcy by adopting healthy financial habits and taking advantage of the many credit-building products available in Canada.
