secured credit

Filing for bankruptcy can negatively affect your borrowing power because your credit score is likely to plummet. This depends on your credit profile, however. If you have fair or bad credit and multiple negative items listed, then you would expect a low to moderate drop. Borrowers with spotless or very good credit, however, see a significant drop.

What to Expect

It is a good idea to learn more about bankruptcy as to know what to expect. This is a last resort for borrowers who have exhausted all other options such as counseling, negotiation with creditors, debt consolidation. Consolidation loans, for example, are offered to borrowers to combine multiple debts and benefit from a single payment. It is a form of refinancing for borrowers with a lot of outstanding debt. Bankruptcy is a solution for people who owe more money than the total value of their assets. In fact, if you owe $1,000 or more and are unable to keep up with payments, you meet the criteria.

Bankruptcy is a solution for borrowers who have unsecured debts, including personal loans, vacation loans, credit cards, lines of credit, etc. Those having a lot of equity may not be allowed to keep their home. When it comes to personal belongings, there are certain exemptions to look into. The list includes things like retirement savings and pensions, heating fuel and food, and farm supplies, equipment, animals, and land. When filing for bankruptcy Canada based borrowers are also allowed to keep their vehicle, furniture, clothing, and health aids. Exemptions vary from province to province. In Alberta, for example, you are allowed to keep your social allowance, farm land, principal home, farm property, tools of trade, household appliances, and food. In Manitoba, you are also allowed to keep some life insurance policies, locked-in pension plans, religious items, etc. In any case, bank accounts are not exempt.

The Bankruptcy and Insolvency Act governs receiverships, commercial and consumer proposals, and bankruptcies. A bankruptcy trustee is appointed to represent the borrower’s estate. Once you have filed, you can expect to receive a discharge in about 9 months unless a court orders an extension.

Your Borrowing Power

After you have filed for bankruptcy, your borrowing power will be seriously affected because you are considered a high-risk customer. There are some things to do to improve your chances of getting approved for a loan or a credit card.

Get Your Discharge

The first step is to get your discharge in a timely manner. Once you do this, it is time to start rebuilding your credit.

Apply for a Secured Card

There are several options to look into, among which secured loans and secured credit cards. A secured credit card is easier to get even if you have a tarnished credit score. The reason is that your savings account serves as collateral, i.e. guarantee of repayment. This makes it less risky for financial institutions. Secured cards are offered to borrowers with a history of poor credit and limited credit exposure. The limit depends on the amount deposited and your score.

A Store Card

Another option is to apply for and open a department store card but interest rates tend to be significantly higher compared to other products. This can be a good solution if your department store offers generous discounts but there is more. A store card can help you to improve you score if you make occasional purchases (as opposed to many purchases). This will help you to lower your utilization rate. A low utilization rate proves to financial institutions that you are a low-risk borrower. Aim at a utilization rate of about 15 percent to help rebuild your credit score. This is provided that you make timely payments and use the line in a responsible manner. In fact, responsible use is the key to rebuilding credit. Late and missed payments show on your report and negatively affect your score. You don’t want this if you declared bankruptcy recently.

An Installment Loan

There are other things to do to boost your borrowing power, and one is to get an installment loan. If you made regular payments on your department store or secured card over the past couple of months, you may want to visit your local bank. Ask what they have on offer. If you get approved for a small installment loan, make regular payments. When it comes to the loan amount, it is always better to be on the safe side and start small. Borrowers with poor credit are usually offered very high interest rates, which adds to the cost of the loan. It is always good to have a credit mix, i.e. personal loans, credit cards, etc. A good mix means diversity and shows financial institutions that you can handle different types of credit. Be careful when applying. Multiple applications can have a negative effect on your score.

Develop Healthy Financial Habits to Deal with Debt

Finally, the most important thing is to develop healthy money and credit management habits to avoid debt and bankruptcy. If you are unsure where to start, you may want to contact a bankruptcy advisor or financial advisor to learn the basics. Your financial advisor will help you learn how to budget, save, and set long- and short-term financial goals. They will help you build a financial cushion (an emergency fund) for a rainy day and emergency situations. A financial advisor will also help you develop a personalized plan based on your individual circumstances. A personalized, step-by-step plan can help you a great deal in terms of rebuilding credit, when to start, what financial products to apply for, and more. When choosing an advisor, make sure you ask whether they offer free information, what services they offer, how much they charge, etc. Ask whether they have monthly or set-up fees.

Once you succeed in rebuilding credit, you will have plenty of choice when it comes to credit cards and loans with attractive terms, low than average rates, and incentives and perks.

Market Conditions

The largest player in the market, People’s Trust discontinued their secured card while other providers tightened up conditions, making it more difficult to qualify with bad credit. People’s Trust is no longer accepting applications but existing holders can still use their cards. This is unfortunate given the low interest rate of 12.99 percent and low minimum deposit of just $500. The Affirm MasterCard Credit Card is another product suitable for borrowers with a poor or fair score. Similar to People’s Trust, the company stopped issuing new cards. The only option that borrowers with poor credit have is the secured Visa offered by Home Trust. The card goes with no annual fee and a minimum deposit of $500. Customers need a bank account to apply but borrowers with poor credit have better chances to qualify compared to unsecured varieties. In reality, however, Home Trust does not approve many applications. The fact that Refresh Financial offers a secured card is good news for applicants with poor credit. As we all know, there are many ways to get bad credit, including divorce, items in collections, identity theft, bankruptcy, consumer proposal, and loss of job. Other reasons include car repossession, late or missed payments, mortgage foreclosure, and high card balances. People end up with a poor credit score when they cosign, fail to pay bills on time, have a seasonal or part time job, and have low income and too many commitments.

Security Deposit, Perks, and Other Features

The card goes with a security deposit of $200 – $10,000, which is less or equal to the credit limit. Customers are offered free access to a program called Financial Intelligence Training. This is a financial education program to help customers gain basic skills and learn how to set financial goals. Borrowers learn how to save money, avoid credit traps, and build personal wealth. They are offered free short videos which are divided into 7 series. The short videos feature money tips and advice to get a better idea how credit works. In addition, customers are offered access to convenient tools such as credit builder calculators to find out how their credit score impacts the interest rate on their card, vehicle or personal loan, or mortgage loan.

Added Benefits

There are further benefits for customers, one being that borrowers have access to more than 1 million ATM locations across the globe. They are also free to make online purchases and shop at more than 24 million in-store locations in Canada and abroad. What is more, the card goes with all benefits of Visa and helps customers build or rebuild their credit. Visa benefits include roadside dispatch, zero liability, rental collision damage waiver, and reporting for stolen and lost cards. Cardholder inquiry service is an added benefit for Visa holders. The rental collision damage waiver, for example, is a beneficial feature in case of damage due to theft or collision. The coverage is offered to all standard Visa holders. The secured Visa from Refresh Financial also comes with standard benefits such as emergency cash disbursement and card replacement and other convenient features.

Rates and Fees

Interest rate: 17.99 percent

Purchase rate: 17.99 percent

Annual fee: $48.95

The Refresh secured credit card is advertised as the lowest cost card on the market, and no credit is required. All payments are reported to the major bureaus to help borrowers rebuild credit. Customers have the chance to rebuild credit over time provided that they make on-time payments. Like other secured cards, maxing out and missing payments has an adverse effect on the customer’s score.

Other Products Offered by Refresh Financial

The company offers a credit building program as well, which is an alternative to secured cards. There are several benefits for participants, and one is that they do not need up-front money. On-time payments are reported to the major credit bureaus which helps borrowers improve their scores. On the downside, there is an initial commitment fee. In fact, customers can choose from different solutions to rebuild credit. One alternative for borrowers with poor credit is the Fresh Start program offered by Refresh Financial. Customers get approved regardless of their score and provided that they are committed to rebuilding credit. The amount available varies depending on the borrower’s requirements. Payments are reported to the bureaus like payments on an installment loan. Timely payments prove potential lenders that applicants are trustworthy and responsible. A portion of the money paid goes toward fees and interest charges, and borrowers are free to use the remaining amount in any way they like after they finish the program.

Keep in mind that the company does not offer credit repair services but only the Refresh credit card and short term secured savings loans. Repayment terms vary from 36 to 60 months and loan amounts are in the range of $1,200 to $5,500. There is a loan set up fee that can be as low as $200 and as high as $400.

How Would Filing for Bankruptcy Affect Your Borrowing Power?