How Does Bankruptcy Affect Your Credit Rating?
Bankruptcy is likely to drop your credit score to the lowest possible rating at most Canadian credit bureaus. That means lenders, insurers, landlords, employers, and utility companies are less likely to extend you credit upon completion of your bankruptcy, but there are ways to rebuild your credit. To learn more about rebuilding your credit, please see Credit Repair after Bankruptcy.
What is a Credit Rating?
Your credit rating is derived from your credit file, which contains information about your credit balances, limits, and payment history (late payments, delinquencies, balance-to-limit ratios), as well as personal details such as your occupation and employment history.
Canada's largest credit bureau, Equifax, uses a simplified scale of R1 to R9—R1 being a perfect score—while TransUnion measures credit scores on a scale of 300 to 900, with 650 generally considered to be the dividing line between good credit and poor credit. Declaring bankruptcy will likely reduce your credit rating to the lowest level.
How Does a Low Credit Score Affect Me?
You may think that your credit rating is a theoretical number that has no impact on your everyday life—but that's not quite true. Lenders and other creditors use your credit score to determine your creditworthiness. The lower your score, the less likely you are to obtain credit, which could be anything from a store credit card to a personal loan or mortgage. It may even hurt your ability to obtain a job if your potential employer seeks permission to check your credit file.
How Long Will Bankruptcy Remain on my Credit Record?
Filing for bankruptcy is a serious step to take, and this seriousness is reflected in the amount of time it stays on your record. Equifax maintains first-time bankruptcy on your record for six years from the date of your discharge; TransUnion maintains it for six or seven years depending on your province or territory.
If you file for a second bankruptcy at any time, both bureaus will maintain this on your credit record for 14 years from the date of discharge.
Is Bankruptcy the Right Solution for Me?
If you think you may need to declare bankruptcy, it's time to talk to a Licensed Insolvency Trustee, who can explain the bankruptcy process in detail—and assess your situation to see if there are any alternative bankruptcy options available to you, such as debt consolidation or a consumer proposal.