Believe it or not, wrong advice regarding credit is very common, especially for people with a recent bankruptcy. Well meaning people often give wrong or conflicting information. These are people working in the credit department at credit card companies, the finance department at a car dealership, in a bank, credit union or working as a mortgage broker. Articles in newspapers, magazines and online are also notorious for giving bad advice. There’s a lot of misinformation regarding the subject of credit rebuilding for Canadians – especially when it comes to dealing with people who have a bankruptcy appearing on their credit reports.
Beware: Many People State Opinions or Assumptions As Fact
It’s also quite common for people to assume something is correct and state it as fact. They may have brainwashed themselves into believing that their opinion is actually the real thing and say it so convincingly that you believe it to be true. Even they believe it to be true! Have you ever heard the saying “the truth is stranger than fiction? ” In the world of credit, this is very much the case. In my literally hundreds of conversations with people in the credit world, I’ve heard it all.
There are also some people who really don’t care what they tell you. If you ask them a question they don’t know the answer to, they’ll make something up that sounds logical to them. Don’t believe me? Try phoning a call centre to ask a slightly out-of-the-ordinary question, especially if it deals with bankruptcy or credit application requirements. The more intricate, the better. Call back three times, and you’ll likely get a different answer every time. Sometimes, the best you can do is keep calling back until you get the answer you want (and act on it right away) or at least until you get same answer three times or more.
Some people just don’t want to look stupid. When you put them on the spot, they want to look smart and they make it up as they go along. The honest ones will say they don’t know and try to find a supervisor to ask, or transfer you to one. Or if they really want to cover for themselves, they’ll say it’s confidential information. Maybe it really is top secret. Maybe it’s not. I used to work at a call centre for a cell phone company, and believe me, if it’s not a routine question, any of the above outcomes are very likely to occur. I saw it happen on a regular basis. Most of these people are working for minimum wage or not much more. You may get a few intelligent ones, but there are also quite a few who really aren’t too bright, or will tell you anything just to get you off the phone.
If They Haven’t Gone Through Bankruptcy, They Don’t Understand
Although bankruptcy in Canada is more and more common these days, us ex-bankrupt folks are still in the minority. It’s not likely that you’ll be dealing with someone who has personally gone through bankruptcy and understands what you’re going through. And even if they have, they may not even be fully informed on what can and cannot be done.
During my my countless research and information gathering sessions in obtaining credit after bankruptcy in Canada, I have spoken to a few call centre agents who have admitted to me that they have personally gone through a bankruptcy in Canada. It’s interesting to hear what they say. Some have done nothing, while others have done various forms of credit rebuilding. Some good, some not so good, which is ironic considering that they work in the credit department!
There’s also plenty of information floating around on the Internet on credit building and debt reduction. A lot of it is written by Americans. That’s fine. Assuming it’s accurate, some of the information is just as valid in Canada as in the United States. But some of it isn’t. Especially when it comes to gaining credit after bankruptcy in Canada.
A Lot Of Information Out There Is Incorrect
I have yet to find an article on credit building that is 100% correct. And, I have yet to get every call centre agent, mortgage broker and finance manager to agree on everything. Granted credit guidelines are different from company to company, and that makes a difference. But if you get someone who tells you that you won’t be able to get any credit anywhere until 6 or 7 years after your bankruptcy, thank them for their time and move on to the next one.
Here are some popular myths you may get as well meaning advice:
“Your credit is screwed for 7 years – just pay cash.”
“Add comments to your credit report.”
And my favourite (not that us recently ex-bankrupt folks would have more unsecured credit cards than we can handle), but “Cut up some of those old credit cards and don’t get or accept any credit limit increases.”
Hah! Nothing could be further from the truth! (keep reading articles on this website to find out why). But those myths do seem logical, don’t they? This may even go against who you’ve heard from some financial gurus. It’s kind of rich when information like this comes from a wealthy investor who has excellent credit and money to burn. How can someone like that know what it’s like to rebuild credit after bankruptcy if they haven’t experienced it themselves? Opinion and hypothetical examples are not acceptable.
Sometimes, what seems logical, is actually wrong. And what seems absurd is the best thing to do.
On journey of life after bankruptcy in Canada, you may encounter someone like a mortgage broker who claims to be able to help with difficult mortgages. I’ve spoke to more mortgage brokers that I can remember. Some were obviously inexperienced, or preferred to deal with people who had perfect credit and routine applications. Others were just very vague. Some even told me I’d have to wait 7 years until after my bankruptcy!
Nothing could be further from the truth! It’s not quite as easy as it used to be to get a mortgage the day after your bankruptcy is discharged. There were still a few of those around when I started asking around in the summer of 2008 as I was about to be discharged from my own bankruptcy. But those quickly disappeared as our economy took a turn for the worse. If you can even find a program like that now, it will likely be at an outrageously high interest rate.
Today, the Rules Have Changed
As with many types of credit products, to be approved for a decent mortgage rate you will need to wait at least two years after your bankruptcy has been discharged (NOT the day you filed), and have at least one line of NEW credit with a perfect payment history for at least 12 months, plus of course, at least a 5% down payment. Those are the minimum requirements. Some lenders require more. Your bank probably won’t be interested in helping you until your bankruptcy no longer appears on your credit report.
I’ve found an awesome after-bankruptcy mortgage broker. He’s quite possibly the best in Canada. We’re both very confident that I will be approved for a mortgage to buy my first home in just a few months. I could apply now, but need to save a bit more for a down payment. I’m excited! So, stay tuned!
What ever type of credit you are looking for, make sure you ask plenty of questions before submitting an application. Credit inquiries that you initiate will lower your FICO credit score and stay on your credit report for at least 3 years. Only apply when you and the person assisting you are almost totally certain you will be approved. Of course, nobody can guarantee you will be accepted. I’d be skeptical of anyone who seems overly sure of themselves. However I do tend to put a lot of trust in people who have extensive and current experience working with ex-bankrupt Canadians. For example, if you’re mortgage shopping, you don’t want to use some inexperienced mortgage broker (or at least inexperienced with after bankruptcy mortgages) to use you as a learning experience.
You Could Be Better Informed Than Most People Out There!
If you study the information on this website, you will be more informed than most call centre agents, rookie mortgage brokers and rookie finance managers. And especially the Canadian general public. If anything, I’ve found finance managers at car dealerships to be more knowledgeable than average on the subject of credit after bankruptcy.
Before my bankruptcy, I never really took much interest in the subject of credit scores, credit reports and how to obtain credit the right way. It was hit and miss. If I got approved, I was happy. If I didn’t, I was discouraged and had no idea what the reason was. I figured it was due to bad credit and just wouldn’t apply for any credit for a few years. Or in my younger days, I’d fill out every credit application I could find. Neither one is a good thing to do. During, and especially a year after my bankruptcy was discharged, I began researching this subject and gathering more information on credit after bankruptcy than most people will ever process in a lifetime!
My Own Credit Is Better Now Than Before Bankruptcy!
Ironically, I have a better credit profile now than I ever had before my bankruptcy – and I’m still in recovery mode! Of course, the bankruptcy showing up on my credit report excludes me from a lot of potential credit, but I have no late payments or accounts in collection now and my credit score is possibly at the highest it’s ever been!
I recall seeing my credit report a few times in the past, but it was usually so bad I’d turn and look the other way. Ignoring something won’t make it go away. Depending on the year, my credit report used to be peppered with R2, R3, R4 and sometimes even R9 ratings on accounts that had gone into collection. If you don’t know what that means, trust me when I tell you that it’s not good. I applied for credit blindly. If I got approved without a co-signer, it was a miracle, though often at high interest rates. Today, thanks to my extensive research, diligence and commitment, my Equifax credit score would be the envy of many Canadians who have never even filed for bankruptcy.
Last week I checked and my FICO score was at 646. It’s OK, but not amazing (although considering that two years ago I was was bankrupt and had close to 20 accounts in collection discharged in my bankruptcy, I’m quite happy)! All I need is 4 more points to be in the 650 to 700 range – a range that many average Canadians are in. That’s a very acceptable range to be in, but I’m aiming higher. It will take time and knowledge. I don’t do ANYTHING that will affect my credit unless I’m at least 99% sure that it will work to my advantage. Believe me, I didn’t get there by chance or by taking the advice of the first person I came across. Research, verification and patience have been the key to success after bankruptcy.
The only information I believe is what I’ve been able to prove myself. Even since my bankruptcy (more in the early days), I’ve made a few mistakes and poor judgment calls that resulted in a step backwards for me. Sometimes at a real financial cost and sometimes at the cost of a lower FICO score and credit profile damage. Today I don’t make any credit decision without carefully planning, researching and verifying everything. A signature phrase of former United States President Ronald Regan was “Trust, but verify.” Now those are words to live by!