How does a Consumer Proposal 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. One of the most common questions we get about consumer proposals is “How will they affect my credit rating?”

Well, you’ve landed in the right place.

We know that navigating the world of credit can often feel like trying to solve a puzzle without all the pieces. Your credit rating is a key 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 play into this intricate financial picture.

In this post, we’ll demystify the effects of a consumer proposal on your credit rating. Whether you’re facing financial challenges or simply planning for the future, understanding these impacts is crucial. We promise to keep things straightforward and jargon-free – because financial literacy should be accessible to everyone. So, grab a cup of coffee, and let’s get into it.

Key Points

• How does a consumer proposal show up on my credit report?
• How Does a Low Credit Score Affect Me?
• How long does consumer proposal stay on credit report in Canada?
• Choose Harris & Partners for Consumer Proposal Advice

How does a consumer proposal show up on my credit report?

Put simply, a consumer proposal will impact your credit rating, but not as severely as bankruptcy. While both choices can make it more challenging to secure credit, a Consumer Proposal remains on your record for the sooner of three years after your complete the proposal payments or six years from the day you file. just three years after your final payment.

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 denotes 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 you obtaining new credit during a consumer proposal, in fact, we will assist you in obtaining secured credit once your proposal is approved, so that when you finish the program, you 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.

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.

For those who opt for a lump sum proposal, the notice will typically be removed in roughly three years, as long as the debtor attends two credit counseling sessions.

To simplify, under these new guidelines:

• The maximum duration for a consumer proposal to stay on your credit report is six years from the date you filed.
• If you complete your consumer proposal payments in five years, the notice will be removed one year later (meaning six years from the filing date).
• If you complete payments in two years, the notice will be removed five years from the filing date.

For those who opt for a lump sum proposal, the notice will typically be removed in approximately three years, contingent upon attending two counseling sessions to obtain your certificate of completion.

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.