In this article, you’ll find information on what happens to your credit rating when you file a consumer proposal. Continue reading to learn how consumer proposals work.
If you've ever had debt, you know the sinking feeling. You're drowning it in. It's hard to make any progress. You might feel completely stuck, but there is a way out.
In Canada, one option people have is to file a consumer proposal. This lets them work out a repayment plan with their creditors.
Still, many people worry about how it will affect their credit rating. In this article, you’ll find information on what happens to your credit rating when you file a consumer proposal. Continue reading to learn how consumer proposals work.
Understanding Consumer Proposals
Before you learn about credit ratings, it’s important to understand what a consumer proposal is. A consumer proposal is a legal agreement between you and your creditors and is arranged by a licensed person called an insolvency trustee.
The proposal lays out a plan to repay part of your debt over a certain period, usually up to five years. It also protects you from further collection actions by your creditors. It is a way to deal with debt without declaring bankruptcy.
Short-Term Impact on Credit Rating
When you file a consumer proposal, it does affect your credit rating, but only for a little while. It shows up on your credit report for up to six years after you complete the proposal. During that time, lenders can see it, and it might influence their decision if you apply for credit.
Long-Term Impact on Credit Rating
Once you finish the consumer proposal successfully, it is noted on your credit report as "R7." This shows that you settled your debt through a legal agreement.
The R7 rating stays on your credit report after the proposal is done. However, over time, the impact of the R7 rating may become less important, especially if you handle your money responsibly.
Rebuilding and Getting New Credit
Filing a consumer proposal affects your credit rating temporarily. It also gives you a chance to start improving your credit score. When you complete the proposal, it shows that you are committed to paying off your debts.
This can be a good thing for future lenders. To rebuild your credit, focus on making payments on time for any remaining debts, like a mortgage or car payment.
It might be harder to get new credit right after filing a consumer proposal, but it's not impossible. Some lenders specialize in offering credit to people with lower credit scores or those who finished a consumer proposal. A secured credit card or small loan with collateral can rebuild your credit.
Be Patient and Persistent
Rebuilding your credit after a consumer proposal takes time, patience, and persistence. It may take a few years to fully recover your credit rating. Avoid taking on too much debt, make regular payments on all your accounts, and don't be late or miss payments.
Consumer Proposal Information
Filing a consumer proposal affects your credit rating temporarily, with the proposal showing up on your credit report for up to six years. However, a consumer proposal also gives you a chance to deal with your debt and rebuild your credit. Get in touch with F.J. Zielski & Associates to learn more about this financial option.