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7 tips for getting a credit card after bankruptcy

By Laura LaRocca and Kristen Frisa

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Getting back on the horse after a tumble like bankruptcy takes time, but it's important to re-establish credit if you want to be part of the financial mainstream and qualify for other products down the road, such as a mortgage.

"So many people jump right back in to debt," says John Eisner, president of Credit Counselling Services of Atlantic Canada Inc.cc-after-bankruptcy

Instead, try these seven steps to ease back into healthy credit use after bankruptcy:

1. Get educated.
"We're seeing a lot more repeat bankruptcies," Eisner says, adding that the No. 1 reason people come for credit counseling is money management issues.

"Too many people are living beyond their means," he says.

More than 60,000 Canadian consumers filed for bankruptcy between June 2016 and June 2017, according to the Office of the Superintendent of Bankruptcy Canada.

"Knowing how much money you make and where you are spending it is critical," Jillian Taylor-Mancusi, a licensed insolvency trustee with LC Taylor and contributor to Bankruptcy-Canada.ca, said in an emailed response to questions.

"A good budget will help you ensure you are living within your means," she said.

It's also important to fully understand the cost of borrowing and the consequences of making only minimum payments on your cards, says Eisner.

2. Use savings in emergencies, if you can.
If you have some funds saved, now is the time to turn to them so you can avoid options that are more harmful in the long term.

"Desperate people do desperate things," says Eisner.

This includes looking for payday loans with high interest rates, which can increase your chances of running into financial trouble. Eventually, you could harm your chances of getting better credit deals in the future or even put yourself at risk of bankruptcy again.

3. Be patient.
According to the Financial Consumer Agency of Canada (FCAC), credit reporting agencies will keep bankruptcy information on file for six or seven years, depending on the agency and the province. Repeat bankruptcies linger even longer, for 14 years following the date of discharge.

"It may take a couple of years after bankruptcy before mainstream financial institutions will consider you for a consumer loan," said Taylor-Mancusi.

Lenders also look for steady employment, and "most financial institutions consider steady employment as at least two years with the same employer," said Taylor-Mancusi.

4. Become a supplementary card holder.
You may have a relative who trusts you and is willing to name you as a supplementary cardholder on their card, says Eisner. This may be a way to get yourself back into handling credit responsibly.

However, becoming a supplementary card holder, also known as an authorized user, will give you access to credit but won't help you build your credit score.

"If the account is handled properly, the principal card holder may get positive reviews, but not so much the supplementary card holder," Taylor-Mancusi said.

5. Obtain a secured card.
A better idea might be to get a secured credit card, which you "secure" with a lump sum of money upfront, which acts as your credit limit.

You pay a secured credit card bill the same as you would an unsecured card, but if you happen to default on the card, the owed balance is covered by the deposit.

And, like a regular credit card, your repayment activity on a secured card is reported to the credit bureaus.

"If it is used properly, it will be a positive, an indication of good credit use," Taylor-Mancusi said.

6. Get a small loan.
A secured loan is easier to obtain than an unsecured loan, so use that to your advantage.

Eisner suggests saving up, then purchasing a guaranteed investment certificate (GIC) from a bank. A GIC is an investment that offers a guaranteed rate of return over a fixed period. You can then apply for a fully secured loan using the GIC as security.

Eisner recommends keeping the repayment period short - perhaps 12 months. With a fully secured loan, you can likely negotiate a lower interest rate.

7. Be smart about seeking credit.
"Yes, you can get credit," Eisner says. "But at what cost?"

Financial institutions offer increased rates to people with poor credit as a result of bankruptcy, to make up for the increased risks the bank takes on. Do your research before signing up for any card and read the fine print about both interest rates and monthly fees. Some cards may offer an appealing introductory interest rate, but those rates will shoot up if you miss a payment or max out your card.

"There is a big difference between 19 per cent and 30 per cent," says Eisner.

In addition, limit the number of credit cards you carry. Eisner says the second-most common reason that people come into his office is excessive credit.

"The average consumer carries four to six pieces of credit," he says. He recommends sticking to one credit card when you're dipping your toes back in after a bankruptcy.

"Lenders are in the business of risk management," said Taylor-Mancusi. "The more you can reduce the risk they are taking, the more likely you are to get a loan."

 See related: Application denied: 6 reasons for credit rejection, How to explain past mistakes when applying for new credit, 5 bankruptcy misconceptions


Updated: October 25, 2017