Consumer proposal credit rating – what happens?
When you file a consumer proposal it will impact your credit rating. You will have an “R9” on your credit report which means “bad debt” or “write-off”. It will remain on your credit file report until you’ve completed your consumer proposal. Once the proposal has been completed, the R9 will be expunged and will be moved up to an R7 credit rating, which means that you completed a settlement with your creditors. The R7 will stay on your credit file report for an additional three years.
A useful resource to review on understanding your credit rating and credit report is Understanding Your Credit Report published by the Financial Consumer Agency of Canada.
Therefore, if you were to file a consumer proposal, it would be to your advantage work with your Licensed Insolvency Trustee to pay it off as quickly as possible: the faster you complete your proposal, the more quickly the R9 will be removed from your credit file report.
Consumer proposal credit rating – Rebuilding your Credit
After you’ve completed your consumer proposal, you can start rebuilding your credit by obtaining a secured credit card. A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Thus if the cardholder puts down $1,000, he or she will be given credit of $1,000. This deposit is held in a special savings account.
The cardholder of a secured credit card is still expected to make regular payments, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus. This allows for rebuilding of positive credit history.
Here is a link to the Credit Card Selector Tool published by Financial Consumer Agency of Canada , an agency of the Government of Canada. We encourage you to use this Selector Tool to review the various secured credit cards available.
Consumer proposal pros and cons »