What will happen to my credit when I file a consumer proposal?

A consumer proposal is a legal agreement made by a trustee between you and your creditors that formally negotiates your debt.  Once a consumer proposal is agreed upon by a majority of your creditors, the proposal becomes binding and notations are added to your credit file to indicate you are in the process of settling your debt. Consumer proposals are generally assigned a credit rating of R7.  If your credit report already reflects a rating of R9 due to your overall credit history, your credit rating will remain an R9 and not improve until you have completed the proposal.

How Will a proposal affect my credit rating?

 

New Credit

While you are in the process of fulfilling your consumer proposal, you will be unable to take out any new credit.  Your credit rating will remain an R7 until you successfully complete the proposal.

Upon completion, you will receive a “certificate of full performance” indicating that you have fulfilled the obligations of your proposal.  Make sure your credit report is properly updated by sending a copy of this certificate to Equifax and Trans Union, Canada’s two major credit-reporting agencies. Be sure to keep all of your proposal-related documents for reference by future lenders.

Completing Your Proposal

Once you have finished paying off your consumer proposal, the notation on your credit report will remain for three. Overall, you can expect a proposal to impact your credit for approximately 6-8 years; 3-5 years to fulfill the proposal, 3 years post-completion for the notation to fall off your credit report; however, you can begin rebuilding your credit score immediately upon completion of your proposal.

In fact, if you’ve been making monthly payments towards the proposal of $750, or $1,000, or $1,500 or more; that amount is now disposable income.  What’s more, you have no unsecured debt.  You are virtually debt free.

You are actually considered by some lenders to be a reasonable credit risk, since you have no debt and a verifiable source of income.  There are a variety of strategies you can use to quickly rebuild your credit rating once your Consumer Proposal is paid off, with some credit repair experts estimating it can be done is as little as 18 months.