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How does a Consumer Proposal affect your Credit Score?

How does a Consumer Proposal affect your Credit Score?

A consumer proposal can be a viable option to manage your debt. It is viewed as a less drastic solution than bankruptcy.

The consumer proposal process is a legally binding, formal option that can help relieve your debt. 

During the proposal process, you create a proposal for your creditors on how much you propose to pay them back, based on your income and assets. 

This plan will outline how much you can pay back to your creditors. If your creditors accept the proposal, you will pay them back monthly over a maximum of five years. 

Before entering into a consumer proposal, it is crucial to consider its potential consequences on your credit score.

Your credit score is an essential measure of your finances and it can affect g your ability to take out loans in the future. 

What is reported on your Credit Report for a Consumer Proposal? 

During a consumer proposal, credit bureaus will adjust your credit rating to an R7. An R7 credit rating indicates that you are making agreed-upon payments through a plan to settle your debt. 

When you file for a consumer proposal, the Office of the Superintendent of Bankruptcy will send information to the credit bureau notifying them that you filed a consumer proposal. 

There will be a note in your credit report legal or public records section identifying the consumer proposal and the date you filed. 

Credit agencies, such as Equifax or TransUnion will adjust your credit rating to R7 when the consumer proposal is filed. 

Along with an R7 rating, each creditor will also report to the credit bureau that your account was ‘included in a proposal.’ 

The credit bureaus are informed when you have completed your consumer proposal and your past debts are paid. They then add the date that you completed your proposal to your credit report.  

How long does a Consumer Proposal stay on your Credit Score

A consumer proposal remains on your credit report for at least three years in Canada. 

There are two major consumer credit bureaus in Canada – Equifax, and TransUnion. 

These agencies compile information about your credit in the form of a credit report and provide it to banks and other lenders to help assess your creditworthiness.

Both Equifax and Transunion will remove a consumer proposal from your credit report

  • three years after you’ve paid off all the debts according to the proposal, or 
  • six years from the date it was filed.

How can I improve my Credit Score with a Consumer Proposal?

Once you have completed the consumer proposal, it is time to rebuild your credit and look towards your financial future. 

Your credit score can impact all financial aspects of your life, including renting a home, future job opportunities, and the ability to take out personal loans or a mortgage in the future.

If you are in the process of completing a consumer proposal, rebuilding your credit should be a significant focus of your financial goals. Building up your credit score can be the best thing you can do, and you are ready to get back on track with your financial goals. 

There are, unfortunately, no overnight solutions to boosting your credit score. Here are some strategies to help: 

Make payments on time

It is vital to make payments on time, especially if you are in a consumer proposal. Multiple missed payments(3 payments within the term) can put your proposal in default, and cause an annulment at which time the creditors can request full payment or file legal action against you. Making the payments on time will help you get back on track faster. 

Review your credit report

The  consumer proposal will be reported on your credit rating. It is essential to review this to ensure that all the information is correct. Double-check that the type of filing is accurate and the dates for filing and completion are right. Any errors can slow down the process of rebuilding your credit. 

Build good money management habits 

Good money management habits such as budgeting and saving are the vital foundations to help you get your finances sorted. You do not have to wait for a consumer proposal to end, to put these habits in motion. Budgeting will help you stay out of debt in the long run. 

Seek out help and resources

It might seem overwhelming to focus on rebuilding your credit and staying out of debt. If you are struggling to keep up, there are many educational resources and professionals who can help you. Debt experts can help you with your financial goals, including debt solutions, credit repair, and budgeting to help you manage your money.

Credit Counsellors at EmpireOne Credit can help you to reduce your overwhelming debt, stopping all interest, help with budgeting and rebuilding your credit. We can help you take control of your finances and your credit score. Our credit counsellors can put you on track to set you up for a better financial future. Contact us for a free consultation

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