Debt Relief Experts
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. Let’s look at exactly how a consumer proposal affects your credit rating and what you can expect during and after the process.
How Does a Consumer Proposal Show Up On My Credit Report?
A consumer proposal appears in two different sections of your credit report:
- The Office of the Superintendent of Bankruptcy notifies each credit bureau when you have filed a consumer proposal. A note will appear in the legal or public records section of your credit report noting the type of proceeding (in this case, a consumer proposal), the date you filed and, later, your completion date.
- In your individual credit accounts, each creditor included in your proposal will report the debt as ‘included in a proposal’ with an R7 credit rating.
What is an R7 Credit Rating in Canada?
An R7 rating indicates you’ve made a formal arrangement to settle your debts, a consumer proposal or credit counselling program. This rating applies to the individual trade accounts on your credit report.
For context, a perfect credit rating is R1, while bankruptcy receives an R9 rating, making a consumer proposal generally less severe than bankruptcy from a credit perspective.
How Long Does a Consumer Proposal Stay On Your Credit Report?
Both major credit bureaus in Canada have specific timelines for when a consumer proposal is removed from your credit report.
When is Your Proposal Removed?
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.
When is R7 removed?
Negative information typically remains on your credit report for six years after the last activity date, whether that’s your last payment or the filing date, depending on the creditor. Sometimes, creditors may incorrectly report accounts as ‘included in a bankruptcy’ (an R9 code); however, the correct legal proceeding will always appear in the public records section. If you notice this error, contact your Licensed Insolvency Trustee for a copy of your consumer proposal documentation and submit a dispute with the credit bureaus to correct it to ‘included in a proposal.’
What This Timeline Means for You:
The longest a consumer proposal will now remain on your credit report is 6 years from the date you file:
- If you complete your consumer proposal payments in five years, the notice will be removed one year later.
- 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).
The faster you complete your proposal payments, the sooner it will be removed from your credit report and the faster you will be able to rebuild your credit score.
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.
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.
What Happens to Your Credit Score During a Consumer Proposal?
A consumer proposal will initially lower your credit score and limit your ability to obtain a new loan. However:
- This impact is temporary.
- Many people find their score is already affected by missed payments or high credit utilization before filing.
The key consideration is that a consumer proposal provides a quicker path to financial recovery by eliminating problem debt. In most cases, you can qualify for a secured credit card and can begin rebuilding your credit score while in an active consumer proposal. Most people can see significant improvement within 2-3 years after completion and qualify for larger loans at better interest rates.
Get advice on your specific situation
How to Get Credit After a Consumer Proposal
A consumer proposal helps you eliminate unmanageable debt, giving you a better financial future by providing debt relief. Once you’ve addressed your debt through a proposal, you can focus on building a new, positive credit history without the stress of overwhelming payments.
Here’s how to rebuild your credit effectively:
- Monitor your credit report regularly for errors
- Send the necessary documentation to the credit bureau to have any mistakes corrected
- Consider a secured credit card to establish a new credit history and pattern of repayment
- Pay all bills on time. Late payments will harm your chances of recovery
- Keep credit card utilization rates below 30%
Part of the consumer proposal process includes two free credit counselling sessions. During these sessions, you will learn better money management skills and more about rebuilding credit.
Getting a Mortgage After a Consumer Proposal
If you have an existing mortgage, most lenders will renew it during your proposal as long as payments remain current.
Getting a new mortgage is possible if you want to purchase a home. Mortgage lenders typically follow the “two plus two plus two” rule to establish creditworthiness for a mortgage. You will need:
- Two new credit facilities (credit cards, lines of credit, car loans, etc.)
- $2,000-$3,000 credit limit per facility
- Two years of good payment history
Please keep in mind that you only need this level of credit if you are looking for a mortgage or other large loan. Always keep your credit limits within your ability to pay off in full each month.
Frequently Asked Questions
Common Myths About Consumer Proposals and Credit
- Myth: You’ll never get credit again. Truth: Many people qualify for a credit card within months of filing. These credit cards can be used to make regular payments to rebuild credit as a stepping stone to better credit options.
- Myth: Credit counselling is better for your credit than a consumer proposal. Truth: Both a consumer proposal and credit counselling (debt management plan) appear as an R7 on your credit report.
- Myth: A consumer proposal is just like bankruptcy on your credit report. Truth: A consumer proposal has less effect on your credit score than bankruptcy. Personal bankruptcy is reported as an R9, while bankruptcy is reported as an R7. If you pay off your proposal early, a consumer proposal is removed from our report sooner than bankruptcy.
- Myth: You must wait until the proposal is removed to rebuild your credit history. Truth: You can begin rebuilding credit immediately, often with a secured credit card
Does Filing a Consumer Proposal Affect My Spouse’s Credit?
A consumer proposal does not affect your spouse’s credit unless you share joint debts included in the proposal. Your proposal will not show on their credit report for separate debts they owe.
Will a Consumer Proposal Affect My Employment?
Most employers don’t check credit reports. Those that do are usually employers who require you to be bonded. Some professional organizations require you to report your consumer proposal and may have rehabilitation requirements.
Can I Rent an Apartment During or After a Consumer Proposal?
Yes. Your current landlord will not be informed of your proposal unless they are a creditor.
If you need to rent a new apartment, be upfront with landlords and provide:
- Proof of income
- Positive reference letters, preferably from previous landlords
- Be honest about your situation and why you filed your proposal. Let them know you have been on time with all your proposal payments.
- Be prepared to offer a larger security deposit
- Find a guarantor or co-signer
- If you don’t have to move immediately, wait until your credit score improves.
Is a Consumer Proposal Right for You?
Getting started on the road to financial recovery means making the first call for debt help. A Licensed Insolvency Trustee (LIT), like Hoyes Michalos, offers professional, unbiased guidance tailored to your specific financial situation. As Canada’s only government-regulated debt relief professionals, LITs provide clear advice on all your options, from debt consolidation to filing a consumer proposal, and can help you determine the best path forward.
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, contact us today for debt evaluation. We can help you eliminate your debt so you can begin to build a new life and a new credit history.
