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One of the most common questions we get about consumer proposals is “How will they affect my credit rating?” If you’re struggling with debt and are considering a consumer proposal as a way out, it’s important to know the full picture.
Well, you’ve landed in the right place.
Your credit rating is a big part of your financial identity, influencing everything from loan approvals to the interest rates you pay. So, it’s natural to wonder how a significant decision like a consumer proposal will affect this.
Whether you’re facing financial challenges or simply planning for the future, understanding these impacts is important. In this post, we’ll explore the effects of a consumer proposal on your credit rating, so you can make a confident decision about your finances.
Key Points
How does a consumer proposal show on my credit report?
A Consumer Proposal remains on your record for the sooner of three years after you complete the proposal payments or six years from the day you file. Put simply, a consumer proposal will impact your credit rating, but not as severely as bankruptcy. Let’s take a closer look.
Consumer Proposals, Public Record & Creditors
When you file a consumer proposal, it will show on your credit report in two ways. First, the Office of the Superintendent of Bankruptcy will notify the credit bureau about your consumer proposal, resulting in a note in the legal or public records section of your credit report.
Originally, it will only include the type of proceeding (in this case, a consumer proposal) and the filing date. Once you complete your proposal, the information will be updated to include the completion date.
Secondly, individual creditors will report that the account was ‘included in a proposal.’ This debt will be labeled as an R7, indicating that you’ve arranged to settle your debts with creditors. For reference, an R1 is a perfect credit rating, while an R9 represents bankruptcy. Therefore, a consumer proposal is generally seen as slightly better than bankruptcy.
Account information is typically removed from your credit report six years after the last activity date. This can be the last payment date or the filing date, depending on the creditor.
There is no restriction on getting new credit during a consumer proposal. In fact, we will help you get secured credit once your proposal is approved so that when you finish the program, you will have better credit than what you started with!
How Does a Low Credit Score Affect Me?
If you have a low credit score, you’ll be considered a high-risk borrower. This high-risk status often means lenders will reject your loan applications. If and when you do manage to borrow money, it will likely come with a high interest rate, to protect the lender’s investment. This makes it even more important to keep on top of your repayments.
How Long Does it Take to Improve Credit After a Consumer Proposal?
Bouncing back from a consumer proposal can feel like a fresh start, and you’re probably eager to see your credit score climb. In as little as 2 to 3 years, you can start noticing improvements in your score.
The key is to start building good credit habits right away. Things like paying any new bills on time, keeping your credit balances low, and using a secured credit card responsibly can all help. Remember, rebuilding credit is a journey, and every positive step counts towards a brighter financial future!
How long does consumer proposal stay on credit report in Canada?
The amount of time a consumer proposal stays on your credit report in Canada varies across different credit monitoring agencies. In 2019, TransUnion and Equifax updated their terms:
- TransUnion removes the consumer proposal from your credit file three years from the date you completed the proposal OR six years from the date you defaulted on the account, whichever comes first.
- Equifax specifies that a consumer proposal will be taken off your Equifax credit report three years after you’ve paid off all the debts as per the proposal, or six years from the date it was filed, depending on which comes first.
If you choose a lump sum proposal, the notice will typically be removed in roughly three years, as long as you attend two credit counseling sessions.
Choose Harris & Partners for Consumer Proposal Advice
We know that dealing with debt can be daunting. But the path to your financial recovery begins with asking for help.
Figuring out if a consumer proposal is the right choice for you is a big decision, and it’s not one you have to make alone. Our Licensed Insolvency Trustees are here to help you find the best debt solution for your specific situation.
For a free and confidential chat about consumer proposals and your other debt help options, give our friendly team a call today.
