Consumer Proposal And Your Credit Rating

How Does A Consumer Proposal Affect Your Credit Rating?

Deciding to file a consumer proposal is about dealing with your debt, but we understand that you may be concerned about the impact a consumer proposal has on your credit report. The good news is that recovering from debt after a consumer proposal or bankruptcy is entirely possible.

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

A reference to the fact that you filed a consumer proposal will appear in two different sections of your credit report.

First, the Office of the Superintendent of Bankruptcy will send information to the credit bureau notifying them that you filed a consumer proposal. A note will appear in the legal or public records section of your credit report identifying the type of proceeding (in this case a consumer proposal) and the date you filed. When you complete your proposal, this information is updated with the completion date. We explain below how long this notice will remain on your report.

Second, each individual creditor will report that the account was ‘included in a proposal’. The debt 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. Account information is generally purged from your credit report six years after the last activity date. That may be the last date of payment or the date of filing, depending on the creditor. Occasionally, creditors will incorrectly report your account as ‘included in a bankruptcy’. The proper legal proceeding will appear in the public records or legal section.

How long will a consumer proposal notice remain on my credit report?

Both TransUnion and Equifax have updated their retention policy regarding consumer proposals. Below is the most current data, as of 2019, from their websites:

TransUnion reports that

  • The consumer proposal and all accounts reported as satisfied through the proposal will be removed from your file three (3) years from the date you satisfied the proposal or six (6) years after the date you defaulted on the account, whichever date comes first.

For more information on how long TransUnion keeps information on file see here.

Equifax states that:

  • A consumer proposal will be removed from your Equifax credit report 3 years after you’ve paid off all the debts according to the proposal, or 6 years from the date it was filed, whichever comes first. 

More information about retention periods for Equifax can be found here.

What does this mean?

The longest a consumer proposal will now remain on your credit report is 6 years from the date you file based on these new guidelines.

  • If you complete your consumer proposal payments in five years, the notice will be removed one year later (that is, six years from the date you filed).
  • If you complete your payments in two years, the notice will be removed five years from the date you filed.
  • If you complete a lump sum proposal, the notice will be removed in roughly three years (you will need to attend two counselling sessions to receive your certificate of completion).

consumer proposal and credit rating video thumbnail

 

Read Transcript

In 2019, the credit bureaus in Canada shortened how long they retain information regarding a consumer proposal.

How long will a consumer proposal last on my credit report? New rules!

Hi, I’m Doug Hoyes, a Licensed Insolvency Trustee with Hoyes Michalos & Associates. Today I’m going to explain these new rules around how a consumer proposal affects your credit report and how long before that information is removed.

A consumer proposal is a program filed with a licensed insolvency trustee to settle your debts for a percentage of what you owe and pay that settlement period over a period of time. The good news is you can often reduce your debt by up to 70%. Because you entered into a repayment plan, this will appear in two different sections of your credit report; the legal or public record section and the individual account section. The legal section is updated by the Office of the Superintendent of Bankruptcy or the OSB. When you file a proposal, the OSB will send information to the credit bureaus stating that the proceeding you filed was a consumer proposal and the date you filed. When you complete your proposal the OSB will send updated information with the date you receive your certificate of full performance. Every credit report also contains a Trade Account section. This is a list of all the debts reported by your creditors and monthly transaction information like your current balance, the date of last payment and if you’re behind on payments. If you file a consumer proposal, your creditors will report to the credit bureau that your debt was included in a proposal. Sometimes the creditors may make a mistake. They may say the debt was included in a bankruptcy. You can apply to the credit bureau to have this fixed, but you can also point anyone to the legal section which always shows the correct proceeding.

So, when is this information removed? Old rules said this was removed three years after completing the proposal. This is no longer accurate. TransUnion now says they will remove all of this information, both the proposal and accounts in your Trade Section three years from the date of completion or six years from default, whichever comes earlier. The default date is the day you filed. Equifax rules are similar.

Why is this change important? Two reasons; first, the maximum time a proposal will now impact your credit report is six years from the date you file. Second, consumer proposals are for a maximum of five years. That means that if you take the full five years to complete your proposal, the proposal and all of the debts will be removed just one year after you complete your payments. It’s also important to know that you don’t have to wait to start rebuilding your credit. It’s possible to get a secured and sometimes unsecured credit card during your proposal. This means you can start the process of rebuilding a better credit history right away, free from your old debt.

For more information on how these new rules work, visit Hoyes.com and search consumer proposal credit rating.

Close Transcript

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:

  1. Monitoring your credit report for errors and omissions and sending the necessary documentation to the credit bureau to have any mistakes corrected
  2. Consider applying for a secured credit card to re-establish a pattern of repayment.
  3. 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 $3,000 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.

It is possible to get credit after a bankruptcy or consumer proposal. Our Free Online Video Course on Rebuilding Credit outlines what lenders are looking for and the steps you can take to rebuild credit.

Enroll for Free

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.

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“I was overwhelmed with credit debt. Being bombarded with constant phone calls, and letters, from debt collectors was very stressful. It seemed like there was no way out. Until I heard about Hoyes, on my local talk radio station. They are friendly, caring, knowledgeable, and professional, with many year's of experience. During my first meeting, they took the time to learn about my debt, and financial situation. Explaining my different options, and helping to come up with a plan that would work best for me. They helped me avoid filing for bankruptcy, by putting forward a consumer proposal to my creditors. My proposal was accepted, and I am happy to finally be debt free, thanks to Hoyes. It feels like a huge weight has been lifted off of my shoulders. Hoyes are the best debt relief specialists.”