Credit Problems for Canadians

Pretty much every single adult out in the world is burdened with some kind of monetary problem or another. Whether it’s bad credit, no credit, or slow credit, here are the ten most common credit problems Canadian consumers face today:

Bankruptcy: Bankruptcy is easily one of the biggest and most common credit problems. It’s an ongoing process that can last anywhere from 9 to 21 months. In order to qualify, you must owe a minimum debt of $1000.00. It’s important to note that your bankruptcy will stay on file for six or seven years from the date of discharge (depending on your province).

While it’s true that it can do a number on your credit score, the people filing for bankruptcy in the first place tend to already have horrible credit so it’s not much of a drop. Bankruptcy can be a saving grace in the long run because it eliminates debt so you’re free to start building your credit again from scratch.

Consumer Proposal: Consumer proposals are also fairly common for Canadians with credit problems. Entering into a consumer proposal is the ideal step before bankruptcy. The best candidates are those who have debts over $5,000 but not over $250,000 (including your mortgage), have a good job and are able to swing at least some payments each month (though can’t afford to make full repayments with interest), and who can’t get a debt consolidation because your debt is too high despite your steady income.

In its simplest form, a consumer proposal is an arrangement you reach with your creditors with the mediation of a trustee. You sign a legal contract and are immediately protected from debt collectors, and you also agree to a partial repayment of the unsecured debts you owe (with your creditors agreeing to forgive the balance).

Bad Credit: Bad credit is one of the most common financial ailments plaguing Canadians today. Whether you’ve developed bad habits where your money is concerned or you’ve fallen on hard time and can no longer make your monthly credit payments, there are always things you can do to climb out of the hole and re-establish your credit score.

Divorce: While legal costs can be a significant factor in pushing couples seeking a divorce over the edge into bankruptcy, the actual act of splitting up itself is the number one cause of financial woes.

Separating from your partner means your expenses go up but your income goes down. Where before two incomes were able to cover the bills and general cost of living, suddenly your income alone has to cover everything. You have to alter everything about your lifestyle which can do a number on your finances.

New to Country: One of the most important things a new immigrant to Canada can do is come up with a solid plan to establish a good credit score. No matter how excellent your track record was in your home country, you have to start from scratch when you immigrate.

Being in good standing with the major credit bureaus is a vital part of being able to successfully build a new life in Canada. Once you’ve proven to creditors that you can and will pay your bills on time, it’s easier to get access to more credit (or to have your limits raised).

Slow Credit: Credit cards can be an amazing resource, but what happens when you’re not able to pay your bills on time? Credit card debt is one of the biggest and scariest types of financial trouble you can find yourself in and it causes many long term credit problems, but there are a few surefire ways to avoid falling into it. Slow credit (consistently making your payments late) is often the first step towards bad credit. Here are some of the biggest causes of credit card debt: living paycheck to paycheck, bad budgeting, misunderstanding how interest accumulates, loss of or reduced income, and irresponsible spending.

Missed Payments: Staying afloat when you have too many bills to pay and not enough money is a challenge, and it’s understandable that certain payment due dates start to slide. Between credit card bills, mortgage payments, student loans, and car payments, the priority for paying off debt often goes to some rather than all of the bills you owe.

It’s easy to see how car, mortgage, or student loan payments can be missed but it’s vital that you contact your lender as soon as possible to prevent your loans from going into default.

Defaulting on Your Loans/Collections: The typical time it takes for a car loan to go into default after missed payments is between 60 and 90 days. If you miss your student loan payments for 270 days/9 months or more, your loan shifts from a state of delinquency into default. The time it takes for a Mortgage to go into default can vary but it’s always better to talk to someone at your bank before the problem grows. Most lenders don’t want to force you out of your home and will only do so as a last resort.

No Credit: As many frustrated applicants have discovered, it’s very difficult to get access to credit if you don’t already have a good (established) credit score. Whether you’re new to the country, young, or just coming out of bankruptcy, getting your hands on a credit card can be a challenge. But there are a number of things you can do start building a credit score that don’t just rely on co-signing with someone else (starting with applying for a secured credit card).

Repossession: The two main types of repossession happen to your car or to your home. In Ontario, if you’re late or behind on your car loan or lease payments, the lender (often the bank or the dealership where you purchased the car) has the legal authority to repossess your vehicle. They are also allowed to sell it so they can recover the amount of your loan still owed.

When your home is repossessed, there are two different terms that pop up: judicial foreclosure and power of sale. Different provinces prefer different tactics, but both result in you losing your home.

Need help getting your credit back on track after credit problems? Fill out an online application here.