How Long Does a Consumer Proposal Stay on Your Credit Report?

No matter how big your debt is, consumer proposals are excellent debt relief solutions that can help you get your financial health back on track. Consumer proposals (sometimes called registered consumer proposals) will stay on your credit report anywhere from a minimum of three to as long as six years, on average. The length of time it remains on your report depends on how long it takes you to pay off the creditors who form part of the proposal.

If you pay off all your registered debts, then a consumer proposal will stay on your report three years from the date you pay off all your creditors. Alternatively, consumer proposals will stay on your report for as long as six years from the date the agreement was officially filed.

Clearly, the sooner you can pay off the debts covered by the proposal, the sooner it will be removed from your report and the sooner the consumer proposal will stop having a negative effect on your credit score.  

How Does A Consumer Proposal Work?

Consumer proposals are legally binding debt management plans made between you and your creditors, in which you agree to pay back a set percentage of your overall debt. The pay-back amount is less than what you owe overall but in exchange for taking less money, your creditors have a guaranteed agreement that you will make your payments.

In Canada, consumer proposals must be administered by a licensed insolvency trustee. The trustee works with your creditors on your behalf to come up with a proposal that everyone can agree on. Typically, with this kind of debt relief solution, you either offer to pay a percentage of what you owe or you ask for more time to pay back the debt, or you can even ask to pay less and to have more time to make payments.  

What Impact Does a Consumer Proposal Have on My Credit?

Like other debt relief solutions (such as bankruptcy, for example), consumer proposals will initially have a negative impact on your credit score and credit report. The negative effect will last as long as the proposal stays on your report. 

When you check your credit report, you’ll also notice that you might have a R⁷ designation somewhere (often listed under “legal items”). The letter R stands for revolving credit and the number seven signifies a consumer proposal. The number you want to aim for is a number 1. Any number above one will hurt your score for as long as it remains on your report. What’s essential to keep in mind, however, is that increasing your credit score and boosting your overall credit report takes a considerable amount of time and requires patience. 

While your credit will take a hit in the short term, a consumer proposal will help get your finances on track for the long term. Having a bunch of creditors listed on your report for years as you try to pay down each individual debt is a recipe for financial failure and could harm your credit report for a decade or more. A consumer proposal, on the other hand, will cause a reduction in your score at first, but will lead to better financial health in the future. 

Why Should I Consider Opting for a Consumer Proposal?

Using a consumer proposal to get out of debt is a good idea when you’re starting to fall behind on payments and you’re beginning to feel like you’re drowning in debt. If you’re still on the fence as to whether a consumer proposal is the right choice for your circumstances, you have nothing to lose by setting up an appointment with a licensed insolvency trustee (LIT), as many offer free initial consultations. During the consultation the LIT can explain the consumer proposal process and help go over a variety of debt relief solutions, so you can figure out which approach is best for your needs.

Is it Possible to Get Credit During a Consumer Proposal?

The truth is that it can be difficult to obtain a loan or credit card with a consumer proposal on your credit file. But it’s not impossible — you’ll just have many fewer options available to you. Look for a secured credit card with a reputable provider that is specially designed to help build credit for people with a shaky financial history. Some alternate lenders may even provide loans to those with bad credit, however, these kinds of loans often come with fees and high interest rates.

Should I Pay Off My Consumer Proposal Early?

Both of Canada’s credit bureaus will keep a consumer proposal on your credit report for three years after you paid off all your registered creditors, or for a maximum of six years from the date you filed the proposal, whichever comes first. It’s always better, therefore, to make all your consumer proposal payments as soon as possible. The faster you pay your creditors, the sooner the consumer proposal will be removed from your file. For example, if it takes you one year to pay off all your creditors, then the proposal will be on your file for an additional three years for a grand total of four years. Four years is much better than the maximum six years.

Will My Credit Score Go Up After A Consumer Proposal?

As noted above, your credit score will actually go down once a consumer proposal goes on your credit report and, unfortunately, there’s nothing you can do in the short term to eliminate the negative impact a proposal has on your score. However, as you work to improve your score by doing things like responsibly managing a secured credit card and always making prompt payments, over time your score will start to steadily go up. Just because you have a consumer proposal on your file now, doesn’t mean that you can’t one day obtain an excellent credit score.

How to Rebuild Credit Following a Consumer Proposal?

While it will take a few years to get a consumer proposal off your credit report, there’s no need just to sit back and wait for your credit to improve. There are things you can do now to begin rebuilding credit as soon as possible by following a few simple steps. 

Monitor your credit report

Staying on top of your credit report is one of the best ways to ensure your finances stay healthy. That’s because you can identify any errors (like credit card payments you made being wrongly reported as unpaid) that are negatively impacting your credit report. 

Additionally, it’s also important to check your credit report regularly to ensure that any of the creditors that form part of your official consumer proposal are not mistakenly being listed separately as unpaid accounts. Unfortunately, it’s quite common for creditors who are part of a consumer proposal to continue reporting that you have an outstanding balance, even though they’re part of the proposal. This kind of error can have a huge negative affect on your credit. In this case you’d need to contact both Equifax and TransUnion to file an official dispute using the complaint process listed on their respective websites.  

Make on time payments

Payment history is the most influential factor affecting your credit score. The more on-time payments you make, the higher your score can potentially rise.

Apply for a secured credit card

Secured cards are designed especially for people with bad credit, and because you must provide a cash amount as collateral to guarantee that you won’t default on payments, they are easier to get than traditional credit cards. Your payments are also reported to credit bureaus so a secured card can help boost your score as long as you manage it responsibly. 

Take out an RRSP

If you’ve done a good job paying off all your debts and have begun to build up a solid amount of savings, you may want to consider investing in an RRSP. 

Normally, contributing to an RRSP won’t directly help increase your credit score (because RRSP accounts aren’t reported to credit bureaus) but getting an RRSP loan can impact your credit. Some loan providers will lend you money to set up an RRSP and those loan payments would be reported to a credit bureau. 

Furthermore, not only would you increase your credit score, you could get a bigger tax return based on your RRSP contribution. Just be cautious because there’s a lot of rules surrounding RRSPs and it’s not worth taking out an RRSP loan if you can’t make the payments and the interest eats up all the money you would get back from a tax refund. 

Get a credit building program

A credit building program (also sometimes called a credit building loan) is very different from a traditional loan. With this type of loan, you actually give the lender money on a set payment schedule over a period of 12 or 24 months. The lender puts the money in an account and reports your payments to a credit bureau. At the end of the loan period, you then get access to the money stored in the account. As long as you make your payments reliably, it’s a great way to boost your credit score while also growing a pot of savings.

Set a budget

It’s very easy to spend money when you’re not monitoring where your money is actually going. A budget helps you prioritize what your wants and needs really are, and then lets you track where you put your money each month. It’s the best way to ensure that your spending is truly aligned with your personal finance goals.

Develop healthy credit habits

Developing healthy credit habits like always making on-time payments and not maxing out your cards will ensure that getting into an uncontrollable debt situation doesn’t become a habit 

Beware of Credit Repair Scams

Unfortunately, credit repair scams are on the rise so it’s vital to ensure you only deal with a reputable licensed insolvency trustee if you’re doing a consumer proposal. The government of Canada has a listing of legitimate LITs on its website. There are also some financial companies that offer reliable credit repair services, but be sure to do your research and contact the Financial Consumer Agency of Canada if you’re unsure.