Bankruptcy & Your Credit Score – What You Should Know
As with anything we don’t know much about it is human nature to begin researching and asking questions about an unfamiliar topic. With regard to bankruptcy, since most people have never had to file, the subject is usually unfamiliar. The most common problems people face when referring to various sources about bankruptcy is misinformation and confusion.
In a bankruptcy Trustee’s office such as ours, we can’t even tally up how many times we have heard incorrect information with regards to the credit bureau and credit score implications. We help many misinformed consumers understand the realities of our credit reporting system as well as how bankruptcy impacts future credit use.
Here are a few important facts you should know about our credit bureaus:
- In Canada, we have two primary credit reporting services (credit bureaus), Equifax and Transunion. These organizations primarily collect and document financial information in order to relay this information to lenders, landlords, and potential employers – provided that you have supplied them with authorization in writing (typically via an application form).
- Your borrowing history, recent employment history, legal name (and any assumed names that have been reported), forms the majority of information contained in your report.
- The two reporting services are typically updated on a monthly basis by major lenders in Canada (such as your bank or credit card company) and the update will include any positive or negative notes about your credit (for example, ‘account remains in good standing’ or ‘payments have been missed’).
- The federal government (Office of the Superintendent of Bankruptcy) will report to the credit bureaus new bankruptcies and completed bankruptcies as they are filed and subsequently closed.
- Mistakes can be made. The information on the credit bureau is updated by people and therefore errors can occur – it is essential to make a routine review of both Equifax and Transunion reports as part of your healthy financial activities. Corrections can be made, but it will be up to you to submit the appropriate information to the bureaus – your Trustee has no authority to do this for you. You can always obtain a free copy of your bureau report – and pulling the report yourself will not have a negative impact to your credit score (third parties, on the other hand, are another story so be mindful of this when making multiple credit applications).
The Impact of Bankruptcy
The credit bureau rating scale starts at 1 and ends at 9. A bankruptcy is a rating of 9 – this is also the rating you will have if you have not been paying your bills for some time. The rating and bankruptcy notation will remain on your report for 6-7 years (the reporting period is 6 years for Equifax and 7 for Transunion) after completion of your first bankruptcy. Should you ever need to file a second bankruptcy, the reporting period will be increased to 14 years.
Your Credit Score
Your credit score is comprised of more than just the bankruptcy notation and rating scale. A credit score is a three digit number between 300 to 900 points with the best score being 900. The score helps lenders determine how much of a risk it would be to lend to you – a bankruptcy will most definitely damage your score, but do not despair – there are ways to improve your score after a bankruptcy ends. Furthermore, lenders will often consider other factors when qualifying you for a new loan after bankruptcy – such as income, how long you have had your current job and your future earning potential – as well as any assets that you may own. The Financial Consumer Agency of Canada website has a wealth of free information that can help you to understand how credit reporting and your credit score works in Canada.
A Filing Delay is a Rebuilding Delay…
Just like Rome – your credit trouble probably wasn’t built in a day – and to rebuild after debt trouble is likewise not going to happen overnight. However, a delay in seeking help to deal with your debt and a delay in filing a necessary bankruptcy is also a delay in reestablishing a good credit score. If you are in need of advice and think a bankruptcy may be your next financial move – please contact us today to schedule a free consultation.
