My credit is a mess. I was trying to pay off my student loans when I was sidelined by an unexpected illness and had to use my credit cards and line of credit to see me through. I eventually had to declare bankruptcy. What do I do now?

The first thing you should do is get a copy of your credit report for free by writing to either of Canada’s two major credit reporting bureaus:

• Equifax Canada Inc. Equifax Canada Inc. Consumer Relations Department, PO Box 190 Jean Talon Station, Montréal Quebec  H1S 2Z2, Telephone: 514-493-2314, Toll-free: 1-800-465-7166, Fax: 514-355-8502, consumer.relations@equifax.com, www.equifax.ca
  
• Trans Union TransUnion Canada – Consumer Relations, 709 Main Street West, PO Box 338, LCD 1, Hamilton Ontario  L8L 7W2, Telephone: 905-525-0262, Toll-free: 1-800-663-9980, www.tuc.ca

If you ask to see your report by mail there is no charge.  But you may be charged to view your info online.

TIP: Since it’s important to check your credit report at least once a year, but preferably twice, you can write to one and then the other credit bureau on a six-month basis and get two checks a year for free.

Next, you’ve got to get busy rebuilding your credit history. Start small and build a history that shows you are responsible by paying your bills in full and on time.

Since “assets” are a good indicator you’re your credit personality – if you have some you’re a better risk – set up a savings account and start stashing some money away. Since you need to be doing some long-term planning, both a retirement account and an emergency fund are a good idea. Remember, you can start small. Just START.

Setting up services in your name will also help re-establish your credit ID. Get telephone, cable and utility services in your name. Because you have a crappy credit history, you may need to provide a security deposit. Once you’ve proven your payment track record, you can ask for the deposit back and throw it in your emergency fund.

Now it’s time to apply for a secured credit card. Ask your bank how it works. Usually you need to leave on deposit one-and-a-half to two  times the credit limit. So to get a credit card with a $500 limit, you will need to put $1,000 on deposit with the credit card company or bank. You can get your deposit back after between six months and a year. Make sure you know how long this is (it varies) so you can plan how you’ll reallocate that money (to retirement savings or your emergency fund).

Gas or department store credit cards are often easier to get and can be good ways to re-establish credit. You MUST pay your bills in full and on time because the interest rates on these cards are often astronomical. As long as you don’t miss a repayment – which you never will again, right? – it makes no difference what the interest rate is. Use these cards wisely and they can be a great toe-hold back into credit.

Once you’re on you way, it’s time to get your first new installment loan.  A retirement savings loan is the perfect way to do this since this loan, while not officially collateralized, might as well be. What it does mean is the interest rate won’t be horrendous. Only borrow as much as you can afford to repay in six months. Don’t let them talk you into more. Then, once the six months are up, use the amount you were using to repay the loan as your month retirement savings contribution. Now you’ve gone from catching up to being proactive about saving and you’ve helped your credit history too.

I’m not sure I should have to remind anyone at this point, but you MUST BE LIVING ON A BALANCED BUDGET!  All the work in repairing your credit history will be for naught if you start spending more money than you make. And you MUST build an emergency fund, so that what happened the last time – something like an illness pushing you to credit – doesn’t happen again.