How Does a Consumer Proposal Affect Credit Scores? (2024)

When debt becomes overwhelming, a consumer proposal may offer a solution. A consumer proposal allows you to negotiate your debts to pay off less than what’s owed to help you get back on track financially.

However, consumer proposals can affect your credit score, but the impact may be less severe than filing for bankruptcy. If you’re considering a consumer proposal to deal with debt, it helps to know how your credit score might be impacted.

How a consumer proposal works

A consumer proposal is a legal arrangement in which you agree to pay off a reduced amount to clear your debts with creditors. You’ll draft the proposal terms with the guidance of a Licensed Insolvency Trustee (LIT). Your LIT then negotiates with your creditors on your behalf.

Assuming your creditors approve, you’ll pay an agreed-upon amount each month. It can take up to 60 months to finish a consumer proposal. Once you complete it, you’re done paying off the debts.

Consumer proposals and credit reports

Your credit report is a collection of information about your debts, including how much you owe, the types of debt you have and your payment history. Equifax and TransUnion are the two main agencies responsible for creating credit reports in Canada.

When you file a consumer proposal, it will likely appear on your credit reports. Specifically, anyone authorized to check your credit report will be able to see:

  • The date you filed

  • Your consumer proposal completion date

  • Which debts were included in the proposal

Once you have a consumer proposal on your credit report, it can remain there for up to three years after making the final payment to the plan or six years after you sign the proposal, whichever is sooner.

How a consumer proposal affects your credit score

The details in your credit report are used to generate your credit score. Using credit responsibly helps your score, while mismanaging debts can hurt it.

Debts in a consumer proposal are coded as R7 on a credit report, meaning you’ve agreed to settle them with your creditors. For some perspective, a rating of R1 is considered to be perfect credit, while bankruptcy is recorded as R9. R9 is essentially the lowest rating someone can have.

Can you get new loans or credit cards with a consumer proposal on your credit report? It’s possible, though your options might be limited. Lenders may see you as being high-risk. If you can get approved, you may pay higher interest rates or fees for any loans or lines of credit you qualify for.

Get your credit back on track after a consumer proposal

Filing a consumer proposal may hurt your credit scores, but the damage likely isn’t permanent. It’s possible to recover your score by practicing good financial habits, including paying bills on time and sticking to a budget. As your score begins to improve, you may consider getting a secured credit card or small personal loan, which could help you re-establish a positive payment history.

Want more tips on rebuilding your credit after filing a consumer proposal or bankruptcy? Read 6 Ways to Rebuild Your Credit Score.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsem*nt of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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How Does a Consumer Proposal Affect Credit Scores? (2024)


How Does a Consumer Proposal Affect Credit Scores? ›

A consumer proposal will affect your credit rating, but less drastically than a Bankruptcy. While both options make it less likely that you will be able to obtain credit a Consumer Proposal will only stay on your record for three years after your last payment.

How much does a consumer proposal affect credit score? ›

A consumer proposal does tend to have a negative effect on your credit score rating. However, the negative effect is less drastic compared to bankruptcy. If you're unsure whether you need a consumer proposal, look into other options like debt consolidation or credit counselling.

What is the downside of a consumer proposal? ›

Disadvantages of a Consumer Proposal:

A proposal will usually take longer to complete than a bankruptcy. Lowering your monthly payment means longer time paying back, however, if your situation improves, you CAN pay off a proposal early. Credit rating is still affected – A Consumer Proposal DOES affect your credit.

How long does it take to improve credit score after consumer proposal? ›

Improving your credit score after a Consumer Proposal or personal bankruptcy is easier than you might think. In as little as two to three years you may even have a better credit rating than before you started – and you can get a new mortgage, vehicle financing, credit card, bank loan, etc.! Let us explain…

Do you have to get rid of credit cards in a consumer proposal? ›

When you file for a consumer proposal, you will have to hand in any credit cards that are part of the proposal. The creditors will freeze or close the credit card for which you previously qualified. You might have a credit card with a zero balance or a credit balance not included in the proposal.

Is it smart to do a consumer proposal? ›

A consumer proposal filing makes good sense if you have a large amount of unsecured debt and a stable monthly income. If you can still repay at least 25% of your total debt over a five-year period, it's likely that creditors will accept a consumer proposal to avoid losing the entire loan balance in a bankruptcy.

Does credit score go up after paying off consumer proposal? ›

Equifax and TransUnion state that it takes three years for a consumer proposal to be taken off your credit score after a last payment. That means the faster you fulfill your obligations and pay off your debts, the sooner you'll be able to rebuild your credit rating.

What happens after you pay off your consumer proposal? ›

FAQ Related to After a Consumer Proposal Is Paid Off

Once you have successfully completed and paid off the Consumer Proposal, it will be removed from your credit report three years after the completion date or six years from the filing date, whichever occurs first.

What is the success rate of a consumer proposal? ›

With a 99% acceptance rate on any consumer proposals we file, we see many Canadians reducing their debt by up to 80% with a consumer proposal. This means that when you file with Spergel, you have a 99% chance of reducing your debt by 80%.

Can you get credit while in a consumer proposal? ›

Yes, you can! The key to getting a credit card with a consumer proposal is a secured credit card. A secured credit card is like an ordinary credit card, except it relies on cash deposits added by you, much like a debit card.

What is the fastest way to build credit after a consumer proposal? ›

7 Tips to Rebuilding Credit Following a Consumer Proposal
  1. Monitor your Credit Report.
  2. Make On-Time Payments.
  3. Apply for a Secured Credit Card.
  4. Take Out an RRSP.
  5. Use a Credit Building Program.
  6. Set a Budget.
  7. Develop Healthy Credit Habits.
  8. Beware of Credit Repair Scams.
Feb 16, 2022

Can you pay off a consumer proposal faster? ›

Not only can you pay off your proposal early, you are also free to make as much money as you want. In a Bankruptcy, you must report monthly income to the Trustee and an increase in income can trigger a monthly payment (or a higher monthly payment). This provision does not exist with a Consumer Proposal.

What is the best credit card during a consumer proposal? ›

A secured credit card is one option for getting a credit card with consumer proposals. A secured credit card works like a regular credit card but is backed by a cash deposit you make to the lender.

Why would a consumer proposal be denied? ›

Consumer Proposal Rejected Due to Debtor Conduct

You brought on, or contributed to your financial situation by rash and hazardous speculations, unjustifiable extravagance in living, gambling or by culpable neglect of your business affairs.

How much debt do you need for a consumer proposal? ›

To file a consumer proposal, which is a debt option more drastic than debt settlement but only slightly better than bankruptcy, you must owe at least $1,000 in unsecured debt. The maximum that you can owe as a single person and still qualify for a consumer proposal is $250,000.

Do I have to change banks in a consumer proposal? ›

Tip: Before making your proposal or filing bankruptcy, you and the joint account holder should open separate bank accounts. Your partner may open their account at the same financial institution and apply for overdraft or a line of credit, but we recommend you switch banks.

How much can a consumer proposal reduce your debt? ›

A Consumer Proposal allows you to make a legal arrangement with your creditors wherein you'll only have to repay a portion of your debts – in full settlement – with no interest, fees or additional penalties. In fact, it's not uncommon for debts to be reduced by 70-80%!

How can I build credit fast after consumer proposal? ›

In order to rebuild your credit after a bankruptcy or a consumer proposal, it's vital that you start establishing a reliable payment history. That means paying all bills on time, including your credit card, utilities, cell phone, etc.

What percentage do you pay in a consumer proposal? ›

Generally speaking, consumer proposal payments result in settling your debts for roughly 30-40 percent on the dollar. However, the cost of a consumer proposal varies for each person based on a few factors, including income, assets, and debts.

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