How Does A Consumer Proposal Affect Your Credit Rating?
Recovering from debt after a consumer proposal or bankruptcy is entirely possible.
Most credit reporting agencies in Canada will place a note on your file indicating that you have filed a consumer proposal. Your credit report will be coded as an R7 which means you have entered into an arrangement to settle your debts with your creditors. A perfect credit rating is an R1, and bankruptcy is an R9, so a proposal is sometimes viewed as slightly better than a bankruptcy. This financial note will remain on file for three years after you finish making all proposal payments.
It is important to note that a consumer proposal results in the same credit report rating that you would receive in a debt management plan.
The more important question may not be what is your credit rating after your consumer proposal but rather how is your financial condition today? If you are missing payments or do not have access to further credit due to carrying too much debt, then the sooner your deal with that debt, the sooner you can begin the debt recovery process.
Rebuilding Your Credit After a Proposal
Your proposal is how you eliminate your debt so you can begin the process of building a new, and better, credit history. Improving your credit score after a consumer proposal involves:
- Monitoring your credit report for errors and omissions and sending the necessary documentation to the credit bureau to have any mistakes corrected
- Consider applying for a secured credit card to re-establish a pattern of repayment.
- Keeping all bill payments current. We strongly recommend that you pay all credit card balances in full each month.
Mortgages after proposal
If you have an existing mortgage, your lender will generally renew your mortgage even during your proposal as long as you have kept current on your mortgage payments.
Rebuilding your credit for a mortgage, if that is your goal, usually requires something called the two plus two plus two rule. While this is an unofficial rule, generally you will need:
- two credit facilities (any combination of credit cards, car loan or other loan)
- if a credit card, it should have a $2,000 credit limit
- you will need to demonstrate two years of good payment history.
Please keep in mind, you only need this level of credit if you are looking for a mortgage or other large loan. Otherwise, keep your credit card limits well within your ability to pay off each month.
Financial Debt Recovery Process
Getting started on the road to financial recovery means making the first call for debt help.
Understand more about how a consumer proposal is the first step in improving your credit by reading our article A Clean Credit Report Does Not Equal A Good Credit Report.
If you are struggling with too much debt, call us today at 1-866-747-0660 or email us for a free debt evaluation. We can help you eliminate your debt so you can begin to build a new life, and a new credit history.