Are You Credit Rich and Cash Poor? Part III In part two, we looked at utilizing Debt Restructuring (specifically, a Consumer Proposal) to get out of debt and free up cash flow. However, in doing so, we took a hit on our credit rating. This segment will deal with rebuilding credit so we can reap its benefits, only this time without the burden of debt. A person who has entered into a Consumer Proposal may start to rebuild credit immediately following court approval, which occurs within 60 days of filing. As a colleague of mine so eloquently proclaims, credit is something we use to leverage ourselves so we may accumulate assets and build wealth. While the use of credit is likely what led to a person’s debt in the first place, the purpose of good credit goes beyond your Visa or Mastercard. To avoid rebuilding credit is to exclude yourself from future opportunities that may hinge on your credit worthiness. Without rebuilding, your chances of obtaining credit when you need it (particularly at a good rate of interest) are slim to none. The only way to rebuild credit is to obtain new credit and use it responsibly. In the early stages, you practically have to buy your credit back by obtaining credit instruments that require you to use your own cash as collateral. The most common introductory credit instrument is a secured credit card. Secured credit cards work exactly like ‘normal’ credit cards, only the credit grantor requires a security deposit up front. Ok, so you decide to obtain a secured credit card. Now what? Well, that’s where a credit rebuilding plan comes into play. Repairing damaged credit takes time and involves following certain rules and guidelines, such as not accumulating too much credit too fast, not getting turned down for new credit, and not abusing credit that’s currently available. When I’m working with a client who needs to rebuild credit I have to make sure that their current credit usage generates enough of a positive impact on their credit score before we move to obtain the next credit instrument. The goal is to show that the person trying to rebuild is capable of meeting the obligations associated with the credit provided. Depending on the individual’s situation, rebuilding credit takes anywhere from 18 to 24 months. My goal is a minimum credit score of 650, as this is the score required for someone to obtain a CMHC approved Mortgage after suffering previous financial problems. It is possible to get out of debt, start fresh, and rebuild credit in a relatively short period of time. This is preferable to wallowing in debt for years and burning countless amounts of cash all in an effort to protect a credit rating that really isn’t serving your best interests. Being Credit Rich and Cash Poor is no way to live. Accumulating cash and building and preserving an excellent credit rating are the prerequisites to building your personal wealth.
Posted on: Sun, 16 Jun 2013 21:41:15 +0000
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