Mortgages and financing after bankruptcy

One of the most common situations I encounter when talking to my post-bankruptcy clients is a lack of re-established credit. With our alternative lenders, I can get good rates for people with past credit challenges, even if there’s a bankruptcy or consumer proposal in the picture, but if there is no new credit to look at, the rate will not be as good. Fixing your credit after bankruptcy is a must if you plan to purchase a house before too long (or to get decent rates when you finance any other major purchases, for that matter).

How do you go about fixing credit after bankruptcy?

Pretty much the minute you get discharged from bankruptcy, you need to get new credit facilities to prove you are “good for the money”. The best way to do this is with major credit cards (Visa or MasterCard) with as high a limit as you can get ($2000-3000 is ideal). *Do not max these out, go over the limit, or miss even a single payment!* How you handle your credit after bankruptcy will be scrutinized carefully by any potential mortgage lender. Even a late cell phone payment can show up on your credit bureau and cause problems.

Lenders to consider for fixing credit after bankruptcy

As one of your options, you can try getting a secured card at the financial institution where you do your banking. They won’t always say yes right away. If they don’t, you can check out Capital One and Home Trust secured credit cards. Clients of mine have also had good things to say about Affirm Financial, who offer an unsecured card for a small fee. Again, you will need to keep the balance at zero if possible, and no more than 30% of the limit, and make every single payment on time.

Do’s and Don’ts

• Do keep your credit cards in great standing.  Use them fairly often (even a small monthly grocery / gas purchase is fine), and pay them off on or before the due date, in full if possible.
• Do get at least two credit facilities.  Lenders want to see two “trade lines”.  These can be a combination of car loan plus credit card / line of credit, or two major credit cards (Visa or MasterCard).
• Do keep the credit cards for at least 24 months or longer. The longer you have the cards, the better your credit rating will become.
• If you carry a balance on your credit cards, do keep your balance at less than 30% of the limit.
• Don’t jump from card to card, even if there’s a cost to the old card or they’re hanging on to your money as security. I know it’s a pain, but until you have two unsecured cards, with a limit of $2000 or more, which have been reporting to the credit bureau for at least 24 months, the older secured / fee-charging cards need to stay in place to show your credit-worthiness.

For more info….

If you want to know more about buying a home after bankruptcy, check out my article on what to expect, here.

To dive further into understanding credit and what you need to know, click here for more articles.

And of course, to ask a specific question about credit after bankruptcy, getting a mortgage on a home, or anything related to mortgages in Toronto, Mississauga, Oakville, and the rest of the GTA, please get in touch with me and I’d be happy to help.

Photo [c] Kanjana Wattanakungchai for vecteezy.com