Consumer Proposal Effect on Credit Rating
When you’re seeking to borrow money from a lender, they will take a look at your credit score.
Therefore it is important to know the consumer proposal effect on your credit rating.
In most cases, you’ll find it difficult obtaining a loan if you have a bad credit rating.
The credit rating assesses your creditworthiness.
This means that it determines the likelihood you’ll be able to repay a loan.
There are several factors that determine your credit rating.
- Your total debt;
- Your debt repayment history;
- court judgments.
In Ontario, when you obtain credit, information is sent to the credit bureau.
Your file in the credit bureau contains all your credit information such as balances, payment history, limits, as well as identification information (name, address, marital status, dependants, insurance number, employment history, etc).
This means that each time you obtain a loan it affects your credit rating either positively or negatively.
The Effect of a Consumer Proposal
When you file for a Consumer Proposal, it implies that you are not able to meet your obligation to repay a loan you had taken from a financial organization or some other institution.
This definitely is not a positive outcome and will negatively affect your credit rating.
In Ontario, the credit ratings are assigned from 1 to 9, for instance R1 or R9 with R1 being the best score and desirable.
In most cases a Consumer Proposal means that you’ll be assigned a credit rating of R7.
The list below indicate each rating and the information they provide.
- R1 – you always pay back your loans to creditors and on time
- R2 – you make the payments, however, often 30 days late
- R3 – you make the payments, however, often 60 days late
- R4 – you make the payments, however, often 90 days late
- R5 – you make the payments, however, often 120 days late
- R6 – this credit rating is often not used
- R7 – you’ve filed for a Consumer Proposal unable to make regular payments, or you are in a consolidation order or debt management plan
- R8 – it rarely appears on credit reports, but can indicate that a creditor as taken actions against you such as wage garnishment.
- R9 – you’ve filed for bankruptcy.
How will an R7 affect you
As noted, your credit rating will indicate an R7 if you apply for a Consumer Proposal.
Under the Bankruptcy and Insolvency Act, the rating will remain on your credit report for three years after you’ve obtained a Certificate of Completion and are discharged of your obligations.
The types of loans that will mostly be available to you are secured loans against a collateral, for instance a car or a property.
With a bad credit rating like an R7, it may also be difficult to obtain employment.
Depending on the type of job you’re seeking, some employer may verify your credit score and not be willing to provide employment if you have a bad credit rating.
Other consequences are simple but can affect your daily activity.
For instance, you will not be able to obtain store cards, or even simple monthly plan like purchasing an item like an iPhone or any other item on a monthly payment plan.
When you’re thinking about filing for a consumer proposal, you should verify your credit rating and decide whether an R7 will greatly disrupt your way of life.
Obviously, upon filing for the Consumer Proposal you will obtain counselling whereby advice on handling your financial situation is given.
Nevertheless, if you have other monthly payment plans in place, it’s essential to contact the service provider and reassure them whether you will still be able to make regular payments.
Regardless, keep in mind that filing for a Consumer Proposal will negatively affect your credit rating and make it difficult to obtain loans for the duration of the Consumer Proposal and up until three years after you’ve obtained the Certificate of Completion.