Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

Unfortunately, filing a consumer proposal will damage your credit, there is no way around it. Choosing to file a consumer proposal is a serious but necessary step for any Canadians struggling with debt. Furthermore, a Licensed Insolvency Trustee (a professional who administers consumer proposals) will not allow those who do not need the help of a consumer proposal to file. While a consumer proposal will negatively impact your credit, the benefits of dealing with your debt typically outweigh this.

What Is A Consumer Proposal? 

A consumer proposal is a legal process, overseen by a Licensed Insolvency Trustee, that helps Canadians deal with their debt. It is a type of debt settlement which means your creditors agree to accept a percentage of what you owe and in return will fully forgive your debts. 

Your LIT will create a plan based on what you can afford and your creditors must accept it. Then you will make your agreed-upon payments and attend two credit counselling sessions. Once you’ve completed all your payments you will receive your Certificate of Full Performance and your debts will be eliminated.

Your Credit Rating After Filing A Consumer Proposal

When you file a consumer proposal in Canada it will affect your credit as it will be reported on your credit report. 

First, the credit bureaus will be notified that you filed a consumer proposal and that will show up in the section of your report that lists legal and public records. 

Second, each of the credit accounts that was included in your proposal will be reported as such, this means they will be given a credit rating of R7.

North American Standard Account Ratings

Your Canadian credit score, the credit ranking you’re probably the most familiar with, is a 3 digit number that represents the likelihood that you’ll make your payments on time. Each of your individual credit accounts is also given another type of credit rating, represented by a letter (I, O, R, or M) and a number (1-9).

Letters

IStands for “installment”, meaning that your loan is being repaid in fixed installments over a certain period of time, such as a personal loan or car loan.
OStands for “open”, meaning you have opened credit, such as a credit card bill that you pay at the end of the month.
RStands for “revolving”, meaning your credit payments are contingent on your account balance. This is the most common type of credit account among borrowers. A good example is a credit card.
MStand for “mortgage”, while not all mortgages show up on credit reports, if they do, they may be represented by an M. Mortgage may also be represented by an I for installment.

Numbers

R0Too little credit history or, credit unused.
R1Account paid within 30 days of due date or one or fewer payments late.
R2Account paid more than 30 days past the due date, not more than 60 days late, or two or fewer payments late.
R3Account paid more than 60 days past the due date, not more than 90 days late, or three or fewer payments late.
R4Account paid more than 90 days past the due date, not more than 120 days late, or four or fewer payments late.
R5Account paid 120 days late or more but had not yet received an R9.
R6Not assigned a value.
R7Account holder is making agreed-upon payments through a debt relief program.
R8Repossession
R9Account in collections or bankruptcy. Account holder moved and did not provide a new address.

How Long Will A Consumer Proposal Stay On Your Credit Report? 

In Canada, there are two credit reporting bureaus, TransUnion and Equifax. Each bureaus has its own policy for how long information stays on a credit report.

TransUnion

Your consumer proposal and all your accounts that were reported as satisfied via the proposal will be removed from your credit report 3 years from the date you successfully completed your proposal. Or, 6 years from the date your defaulted on the account. Whichever dates is first.

Equifax

Your consumer proposal will be removed from your credit report 3 years from the date you successfully completed your proposal. Or, 6 years from the date your proposal was filed. Whichever date is first.

How To Rebuild Credit After A Consumer Proposal? 

Apply For A Secured Credit Card – Accessing credit after a consumer proposal can prove challenging. Instead, you can apply for a secured credit card which almost guarantees approval. To qualify for a secured credit card, you simply need to be able to provide the minimum security deposit which also acts as your card credit limit. Every payment you make with your secured credit card will be reported to one or both credit bureaus, which can help you build a positive payment history. This, in turn, may increase your credit scores. 

Monitor Your Credit – Mistakes on your credit report may negatively impact your credit scores, so monitoring and correcting any errors on your credit report is another way to help build your credit. To ensure the information being reported about your consumer proposal is accurate, you can send a copy of your “certificate of full performance” to the two major credit bureaus. 

Can You Build Credit Faster By Finishing A Consumer Proposal Early? 

Once your consumer proposal has been paid off or completed you can begin building your credit. As such, if you pay off your consumer proposal early (by taking out a consumer proposal loan or by borrowing money from friends or family), the earlier it will be removed from your credit report. Moreover, you can work towards building your credit once your consumer proposal is paid off by paying down your consumer proposal loan. 

Is A Consumer Proposal Worth The Negative Impact On Credit? 

One of the most frequently asked questions that we get, concerning consumer proposals and credit ratings, is whether or not you should worry about how your rating is affected. Unfortunately, there isn’t a straightforward answer to this. Technically, the answer is yes as you should always be worried about how your financial decisions affect your credit rating. But, sometimes filing a consumer proposal is the right decision even if it may negatively affect your credit, as it can help you get back on track financially. 

Consumer Proposal FAQs

Will a consumer proposal be a permanent record on my credit report? 

No, your consumer proposal will not stay on your credit report permanently. Generally, consumer proposals will stay on your credit report 3 years after completing the program. 

Can I get a loan after a consumer proposal? 

It is possible to get a loan after a consumer proposal, however, you’ll likely have to apply with an alternative lender as banks and other traditional financial institutions may see you as too risky. While you may qualify with these alternative lenders, it’s important to note that they often charge higher interest rates, which will make the loan more expensive. 

Should I file for a consumer proposal?

If filing a consumer proposal is on your mind then you’re more than likely dealing with some serious financial issues. Getting the help you need to deal with or fix these issues should be your number one goal, even if that means filing a consumer proposal and negatively affecting your credit rating for several years. In most cases, getting the help you need to get back on track is worth the low credit ratings.

Bottom Line

Debt can affect all aspects of your life. Taking the necessary steps to deal with it is always the best choice, even if that means filing a consumer proposal. Having a plan in place to get your debt under control and finances back on track will, in the end, be worth it. If you’re still worried that a consumer proposal is not the best option for your situation or are concerned about the effect it will have on your credit, you should seek the expert advice of a credit counsellor.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2023/09/GlobeMailTopCompanies2023-1.png
Loans Canada places No. 228 on The Globe and Mail’s fifth-annual ranking of Canada’s Top Growing Companies.

By Caitlin Wood, BA
Published on September 29, 2023

Loans Canada is excited to announce it has made it onto the Globe and Mail’s Top Growing Companies list for the second year in a row.

https://loanscanada.ca/wp-content/uploads/2023/09/Finder-Awards.png
Finder Awards Finalists: Personal Loans Customer Satisfaction Awards 2023

By Priyanka Correia, BComm

Loans Canada is happy to announce it received the finalist award in the Best Personal Loan Search Platform category.

https://loanscanada.ca/wp-content/uploads/2016/12/caution-1.jpg
Beware of Fraudulent Lenders Impersonating Loans Canada

By Caitlin Wood, BA

A note to our clients about fraudulent lending practices and illegal upfront fees.

https://loanscanada.ca/wp-content/uploads/2022/10/How-To-Pay-Your-Taxes-With-A-Credit-Card-Through.png
How To Pay Your Income Taxes With A Credit Card

By Lisa Rennie

If you’d like to pay your taxes using a credit card, you’ll need to use a third-party service provider like Plastiq or PaySimply.

https://loanscanada.ca/wp-content/uploads/2021/08/Climate-Action-Incentive-CAI-1.png
What Is The Canada Carbon Rebate (CCR)?

By Bryan Daly

The Climate Action Incentive Payment (CAIP), or Carbon Tax Rebate, is quarterly benefit paid to eligible Canadians in

https://loanscanada.ca/wp-content/uploads/2021/03/Canada-Workers-Benefit-CWB.png
Can You Claim The Canada Workers Benefit (CWB) In 2024?

By Bryan Daly

The Canada Workers Benefit is a refundable tax credit for individuals earning a low taxable income of $3,000 - $24,112.

https://loanscanada.ca/wp-content/uploads/2020/12/Student-Tax-Credits-and-Deductions.png
Student Tax Credits In Canada

By Chrissy Kapralos

Similar to how there are specific tax credits and deductions for businesses, seniors, and parents, there are student tax credits in Canada.

https://loanscanada.ca/wp-content/uploads/2021/04/Pay-Less-Taxes-Canada.png
How To Pay Fewer Taxes In Canada

By Bryan Daly

People are always trying to figure out how to save money on taxes in Canada. We present the best ways to legally pay less tax in Canada.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card