Consumer Proposal And Your Credit Rating
Your Credit Rating in a Consumer Proposal
If you are thinking about opting for a consumer proposal, then you should know that it will drop your rating.
If you decide to opt for a consumer proposal, then this will often make it hard for you to obtain any kind of credit from lenders or even insurers.
A consumer proposal will also stay on your record for three years, from the last payment you made.
If you are not sure if a consumer proposal is right for you then this guide will help you to find out everything you need to know.
What is a Credit Rating?
A credit rating is essentially an estimate of how well you are able to meet your financial commitments.
Your credit score will usually be based on your payment history and the current status of your loans.
One of the biggest credit bureaus in Canada is Equifax.
They will measure your credit score on a scale of 1-9.
If you have an R1 rating, then this means that you are able to make payments on time.
If you have an R9 rating, then this would imply that you have declared bankruptcy.
Of course, if you have filed for a consumer proposal, then you will have the R7 rating.
This is a very low credit score and it will not change until your proposal has ended.
How Could You Be Affected by A Low Score?
If you have a low credit score then this can create challenges for you, financially.
You will be considered as high risk, and this will make it harder for you to obtain credit in the future.
If you are able to get credit, then you may find that you end up paying way more fees or interest rates.
You might also find it harder to get a new job if your employer needs to check your credit score.
How long will it Stay on my Record?
Equifax have stated that it takes 3 years for you to see your consumer proposal effects wiped from your credit score.
Your consumer proposal will only be removed 3 years after you have made your last payment for it.
This ultimately means that the faster you are able to fulfil your obligations, and the faster you pay your debt, the sooner you can then rebuild your rating.
Is a Consumer Proposal the Best Option?
Consumer proposals are far less dramatic when compared to bankruptcy, but if you want to qualify for one then you need to make sure that your total debts are less than $250,000.
This does not include your mortgage.
You also need to make sure that you have a reliable income and that you are able to make all of the payments you need.
Credit Reports – Explored in Detail
As mentioned above, credit scores range from 1 to 9.
There is an R in front of each number, which stands for revolving credit.
This covers any accounts that carry a running balance, or accounts which you are required to pay a portion of each month.
R1 – You always pay your credit account on time.
R2- Your payments are over 30 days late
R3 – Your payments are over 60 days late
R4 – Your payments are over 90 days late
R5 – Your payments are over 120 days late
R6 – This number is very rarely used.
R7 – Is if you have filed for a consolidation order, consumer proposal or even a debt management plan.
R8 – This shows that a creditor has taken steps against you, such as repossessing your car.
R9- When your account is placed for collection or if you are bankrupt.
How to Rebuild your Credit
Strangely enough, the only way for you to fix your credit score would be for you to try and take out another line of credit.
If you are thinking about applying for a consumer proposal then you need to think very long and hard about doing this because although it may feel great to be accepted for a new card, you need to make sure that you do not overextend your ability to make the payments you need.
You don’t need to borrow huge amounts to rebuild, and as always, making your payments on time is key.
Set a Budget
If you have filed for a consumer proposal already, then your trustee will have put together an income sheet and an expense sheet.
It’s vital that you know how much you are spending.
The key to budgeting is for you to set aside money for your variable costs and your fixed costs.
This needs to be done every month.
Establish another Line of Credit
If you want to boost your credit rating, then you may want to try and establish another line of credit.
You have the option of revolving credit, which is constantly available to use, or instalment credit.
Revolving credit can include a credit card or a store card. Instalment credit is where you borrow from a lender over a set period of time.
This can include a mortgage, a car loan or anything else of the sort.
Taking out credit may be risky if you want to build your credit score because if you do and you are not able to make your new repayments, then this will really work against you and you may even find that you are not able to explore the same debt options as you did before.
If you are not sure if you should be getting a new line of credit or if you would like to get some help with your debt plan then the best thing that you can do is talk with a licensed insolvency trustee.
They can then talk you through your options while also giving you the support you need with every step of the process.
If you want to find out more then contact Bankruptcy Canada to find out more.
We can be contacted by phone or email.