Tag Archives: rebuilding credit

Bankruptcy Stats Are On the Rise…and Alternatives…

There were multiple media stories a few weeks ago that the bankruptcies and proposals in Canada are rising rapidly. They were up over 9% from April a year ago nationally.

OK, that’s true. But…First, it’s comparing a pretty low year, so the percentages are quite misleading – percentages almost always are. Just look at the report that Vancouver home sales were up 44% last month over a year ago. Yes, but off an incredibly brutal April last year. So I always want to see the real numbers and not the percentages. In BC there were 22 more actual bankruptcies than a year ago, in Alberta exactly 100 more, and less than 150 for the whole country. (That’s bankruptcies and not proposals where there is some kind of payback set up through a trustee).

Every single bankruptcy is a very personal and often tragic or heartbreaking story. Yet, every person who has to file, should also be admitting that they caused it and are responsible in one way – some small or big way – or another. There is zero chance someone who is debt free will ever file for bankruptcy.

For anyone coming out of bankruptcy the question to ask is if they’ve learned that lesson and will never go down the debt road again. Then, read the rebuilding credit chapter in the Money Tools book for the five steps (and only five) to rebuilding your credit.

For anyone wondering if they can make it back from the edge of financial trouble, here are a few things to consider:

-There is a recession coming. I first started talking about it a year ago. It’s going to rain – get an umbrella now. Pay off what you can. Not a few bucks extra here and there – read the step up plan to pay off your debts smallest to largest.

-Most people also don’t need to file for bankruptcy. Canada does not have a debtor prison. It’s perfectly OK to stop paying your credit card. They’ll call, they’ll have a fit, they’ll send you nasty letters but that’s it. Tell them calmly that you don’t have the money and you can email them your bills in order of priority and your income. They’re not even going to want it – trust me.

-Ask  yourself if you have your priorities straight: Food, shelter and utilities are fist. If you have enough income for a roof over your head and food you’re doing OK. Everything else comes after that. When you’re out of money on paying your priorities – the rest will have to wait – period.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Starting Or Rebuilding Credit

Having a decent credit rating in today’s society really isn’t an option – it’s almost a must-have. Apartment management companies will make their decisions based on your credit score, bonding companies, large numbers of hiring managers, not to mention all financial institutions, for everything from opening an account to your ATM limit, a credit card, or loan, will pull your credit score.

That makes it critical for you to get and keep a decent and clean credit report, or to rebuild it after something has gone off the rails. You HAVE to read the credit score and the building credit chapters in the Money Tools book. That $20 investment at Mosaic on Bernard or Amazon will literally turn into thousands of dollars saved on any financial stuff – or even getting the job or apartment you want!

If you’re starting credit, you’re building it. If you’re re-establishing credit, you’re healing AND starting credit again. They’re both similar in what you need to do.

The simplest way is through either a small limit credit card of a cash-collateral loan. The smaller the financial institution, such as a credit union, instead of a bank, the more they’ll help. Sorry, but to the banks, you’re one person out of the ten million credit cards they already have – and they can do without one more. Get a credit card with a $500 limit and never charge more than $100 on it. You need to keep your balance at less than 20% of the limit. In a year, they’ll increase your limit and inside a year and a half, you’ve got perfect credit if you don’t start applying at a dozen other places and going badly into debt.

Don’t believe me? Below is a print of the credit score of an 88 year old. Less than two years ago, she needed a small credit card. That’s exactly what I set up for her. Today, her credit score is 832! 850 is a perfect score, so she’s in the top one percent of the country at age 88, in a nursing home, living on old age pension!

If you need to first heal your credit, a cash-collateral loan is borrowing $2,000 or so but leaving that $2,000 with the lender as collateral. Set it up for 12 months and the tiny bit of interest you pay is worth the cost to re-establish your credit. First ask if they’ll do an RRSP loan. That’s a win-win-win to build credit again, save for retirement, and build your credit. But if they say no, it’s only because they cannot take the RRSP for collateral. Then, plan B is the cash-collateral loan. Once you’ve done that, don’t do anything else. Your bad credit will get older and start to drop off your credit report, but the new loan will be fresh, up to date, and reporting monthly to the credit bureaus. Don’t borrow more – you can’t speed up the calendar. Get this done and take a one or two year time out and you’ll be back on top!

Cash Collateral Loans

I’ve been using this trick with people for a lot of years, but I realized we’ve never talked about it. It’s an inexpensive way to start building credit, to re-establish your credit, or to save a ton of money for people who can’t seem to save on their own.

Would you lend me $100 if I gave you the $100 cash for collateral? Of course – because there is no risk or downside, and your profit is the interest you’ll make from me on the loan. Credit unions do these so-called cash collateral loans, and a few of the banks do, too.

If you’re starting to build credit, it’s most likely you’ll do it with a credit card. But good credit is two years or more with a higher limit. A new card with a $500 limit gets you started, but it’s a tiny risk, thus a very small start to building credit.

Anyone who has had a bankruptcy also isn’t going to be able to borrow for at least three years or so. If you’re discharged from bankruptcy or have no credit, go to a credit union for one of these loans. It’s also in the Money Tools book chapter of: How to rebuild credit. Get a $2,000 loan set up over 12 or 18 months and give them the loan money as collateral. You’ll make the payments at a low interest rate and, at the end of the term, get the $2,000 released back to you. At that time, you’ll have a great start to a rebuilt credit record, and for a good-size amount of money (called high credit). The larger the loan, the more it will boost your credit rating. But you have to be able to make the payments – each and every month!

It also works the same with an RRSP loan but you need good credit to get one. By tax law, the lender can’t use the RRSP for collateral if you don’t pay.

These cash-collateral loans also work for the wealthy. You’d be amazed how many of them have the cash flow to make their payments, but don’t save. I had one person last year that was going to get an $8,000 a month whole life policy. It’s meant to give an insurance policy and build in an investment component, but it’s one of the worst financial product ever invented!

A term policy for his family was about $500 a month, and the other $7,500 payments towards a loan would get him the same $2 million insurance, and $200,000 cash in his hands at the end of a two-year loan!