Consumer Proposal and Credit Score

The Implications of a Consumer Proposal on Your Credit Score

‍When faced with overwhelming debt, a consumer proposal can be a viable option to regain control of your financial situation. However, it’s crucial to comprehend the effects of a consumer proposal on your credit score. This article aims to shed light on this often-misunderstood aspect of dealing with debt.

Understanding Consumer Proposals

A consumer proposal, by definition, is a legal agreement set up by a licensed insolvency trustee. The trustee negotiates with your creditors to allow you to pay back a percentage of your debt, over a period of up to five years. It’s a popular alternative to bankruptcy, mainly because it allows you to keep your assets, unlike a bankruptcy proceeding.

Effect of a Consumer Proposal on Credit Ratings

When you file a consumer proposal, it has an immediate impact on your credit rating. The credit bureaus, namely TransUnion and Equifax, typically assign an R7 rating to your credit report. This rating signifies that you have entered into a special arrangement with your creditors to settle your debts.

The R7 rating is detrimental to your credit report, but it’s not the worst. Credit ratings range from R1 (the best) to R9 (the worst). Therefore, while an R7 rating is not ideal, it’s still considered better than an R9 rating, which is assigned in the case of bankruptcy.

Duration of the Consumer Proposal on Your Credit Report

The timeline for a consumer proposal’s presence on your credit report is determined by two main factors: the date you filed the proposal and the date you completed it. Specifically, TransUnion and Equifax will remove the consumer proposal from your credit report either six years from the date you filed or three years from the date you completed the proposal, whichever comes first.

Therefore, the longest a consumer proposal will stay on your credit report is six years. However, if you manage to complete your payments in less than three years, the proposal could be removed from your report earlier.

Credit Report Monitoring and Errors

It’s critical to regularly monitor your credit report during and after your consumer proposal. Occasionally, creditors might incorrectly report your account as being included in a bankruptcy, which is a more severe scenario. Therefore, it’s up to you to ensure that your credit report accurately reflects your consumer proposal and not a bankruptcy.

Furthermore, it’s not uncommon to find errors on your credit report after you’ve completed your consumer proposal. Any inaccuracies should be corrected promptly to ensure your credit report is up-to-date, giving you the best chance of rebuilding your credit effectively.

Rebuilding Your Credit Post-Consumer Proposal

Once you’ve completed your consumer proposal, it’s time to start rebuilding your credit. This process requires patience, discipline, and a clear understanding of your financial capabilities. Here are some steps you can take:

  1. Monitor your credit report: Regularly checking your credit report will allow you to spot any inaccuracies and have them corrected promptly.
  2. Apply for a secured credit card: A secured credit card can be an effective tool for rebuilding your credit. However, it’s crucial to ensure that you can make the repayments in full each month.
  3. Stay current with your bills: Always pay all your bills on time. Timely payments will contribute positively to your credit score.

Mortgages and Consumer Proposals

If you have an existing mortgage, it’s possible to renew it during your consumer proposal, provided you’ve been making your mortgage payments on time. However, securing a new mortgage might require you to follow the “two plus two plus two” rule. This rule stipulates that you need two credit facilities, each with a $3,000 limit, and two years of good payment history.

A Fresh Financial Start

While a consumer proposal does negatively impact your credit score in the short term, it’s a necessary step towards a stronger financial future. The key lies in understanding the process, making informed decisions, and taking a proactive approach to rebuild your credit after the proposal.

A consumer proposal isn’t a financial death sentence. With the right approach, you can use it as a stepping stone towards a more stable and secure financial future.

Getting Help

Remember, you’re not alone in this journey. Licensed Insolvency Trustees are available to guide you through the process, from filing the consumer proposal to rebuilding your credit afterwards. Their expertise can be invaluable in helping you navigate this complex financial landscape.


In the end, the impact of a consumer proposal on your credit score is undeniable. However, it’s a temporary setback on your path towards financial stability. By understanding the process, being diligent about your payments, and proactively rebuilding your credit, you can overcome this hurdle and set yourself up for a financially secure future.

So, if you’re struggling with debt, consider a consumer proposal. It might just be the lifeline you need to regain control of your financial life.

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