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

Dealing with debt can be overwhelming, but a consumer proposal offers a practical way to manage it without having to declare bankruptcy. But, if you choose this route, you might be asking, “How long does a consumer proposal stay on my credit report?”

In short, a consumer proposal typically stays on your credit report for three years after you have made your final payment or six years from the date you filed, whichever comes first.

If you think this might be the right solution for you, let’s break down what a consumer proposal is, how it affects your credit, and the steps you can take to rebuild your credit once it is no longer on your report.

What is a Consumer Proposal and Its Impact on Your Credit

So, what exactly is a consumer proposal? A consumer proposal is essentially a deal you make with your creditors, and it is handled by a Licensed Insolvency Trustee. It is a formal and legally-binding debt settlement agreement that combines all your debts into one easy-to-manage payment, while also cutting down the total amount you will owe.

A consumer proposal can consolidate almost all unsecured debt, including:

• Credit card debt
• Unsecured lines of credit
• Bank overdraft fees
• Tax debt
• Student loan debt
• Payday loans
• Personal debts to individuals, such as money owed to friends or family

Unsecured debt means there is no collateral tied to the loan, unlike secured debts such as mortgages or car loans.

The Upside of a Consumer Proposal

• Cut Down Your Debt: One of the biggest perks is that it reduces the total amount you owe. Creditors agree to take a bit less than the full amount because they know they will get something, which is better than nothing.
• Avoid Bankruptcy: A consumer proposal is an alternative to declaring bankruptcy.
• No More Interest in Most Cases: As soon as you file a consumer proposal, interest stops piling up on your debt in most cases. This makes it a lot easier to manage your payments.

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

According to Equifax, a consumer proposal will stay on your credit report for three years after you have made your final payment or six years from the date you filed, whichever one comes first.

How to Improve Your Credit After a Consumer Proposal

Having a consumer proposal will initially harm your credit rating. This rating helps future debtors, such as banks or credit card companies, determine your ability to repay them. Of course, there are other factors that come into play such as payment history or how long you have been employed.

However, filing a consumer proposal does not damage your credit forever. Addressing your debt through a consumer proposal benefits you in the long run, though it takes time. A consumer proposal helps you rebuild your financial life. By ending the minimum-payment cycle, you can responsibly acquire new credit.

Here is how you can improve your credit upon successfully completing your consumer proposal:

Make Timely Payments

First off, make sure you are paying all your bills on time. This includes any leftover debts and any new credit obligations. Paying on time shows lenders that you are responsible and can handle your finances well. Plus, it helps you avoid falling back into serious debt.

Keep Your Credit Usage Low

Credit utilization is how much credit you are using compared to your total credit limit. It is best to keep this number under 30%, so do not max out your credit cards. For example, if you have a $1,000 limit, aim to keep your balance below $300. On the same note, try to exercise the same practice with your debt-to-income ratio. This not only boosts your credit but also helps you manage your finances better and avoid overspending.

Build Up a Positive Credit History

To rebuild your credit, you can consider getting a secured credit card. It works like a regular credit card, but you put down a deposit that becomes your credit limit. You can use it for small purchases and pay off the balance in full every month to show you are managing your credit responsibly. This steady, positive activity on your credit report can go a long way in improving your rating.

Stay Mindful of Your Spending

After a consumer proposal, it is important to stay on top of your spending habits to avoid falling back into debt. Create a budget and stick to it, track your expenses, and prioritize saving. By being proactive and disciplined, you can take control of your finances and keep your credit rating on the rise.

Get Debt Counselling

If you are feeling lost, you can learn to budget and better manage your money with debt counselling. There is no “quick fix” to improving your credit rating as it is a process that will wake time. Working with a professional can help you come up with a plan to rebuild your relationship with money and improve your credit rating over time.

How Farber Can Help Manage Your Debt

If you are considering a consumer proposal, remember it can be a powerful tool to manage your debt. At Farber, we can help you cut up to 80% of your debt, making it more manageable to pay off and setting you on a path to financial recovery.

We know that dealing with debt can be tough, but we are here to help you through the process of a consumer proposal and beyond. Contact us to book your free consultation!