How Will a Consumer Proposal Affect my Credit Rating?

2015-01-30   minute read

Frederic Lachance

Consumer Proposal

If you’re overwhelmed with debt and looking for relief, you may be wondering if bankruptcy is your only option. The good news is – it’s not. Many individuals struggling with debt problems are looking at Consumer Proposals as a debt relief solution with many positive benefits, including a reduced impact on your credit rating in comparison to a bankruptcy.

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Below is a quick guide to how your credit score is calculated, based on how overdue your payments are or if you are currently going through a Consumer Proposal or bankruptcy.

  • R1 – You pay your creditors on time.
  • R2 – Payments are 30 days late.
  • R3 – Payments are 60 days late.
  • R4 – Payments are 90 days late.
  • R5 – Payments are 120 days late.
  • R6 – Typically not used.
  • R7 – You are in a Consumer Proposal, consolidation order or debt management plan.
  • R8 –Used to show that a secured creditor has taken steps to realize on their security.
  • R9 – A bad debt placed for collection or considered uncollectible, or you are bankrupt.

As you can see, the credit rating for a Consumer Proposal is R7. If you were to file a bankruptcy, it would be R9 – the lowest score possible. Your credit score will remain R7 until your proposal is completed.

After your proposal is done, a note will be placed on your credit record noting that you have completed a Consumer Proposal. This notation will remain there for three years after completion. During this time, you will be able to take action to rebuild your credit. For example, you can obtain a credit card, get a RRSP loan or ensure all future credit payments are completed on time.

In general, many of our clients will opt for a Consumer Proposal over a bankruptcy in part because of this reduced impact on their credit score. If you’re unsure as to whether a Consumer Proposal is the right life-changing debt solution for your individual situation, contact one of our Licensed Trustees to learn about your options.

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