Spotlight: Does a Consumer Proposal Ruin Your Credit?
Last week we went over some of the basics of a consumer proposal, and thought we’d follow up this week by clearing up a few other questions people have regarding consumer proposals. The spotlight this week: does a consumer proposal ruin your credit?
Does a consumer proposal ruin your credit? This is one area where people get confused about consumer proposals. One common myth is that, if you file a consumer proposal, your credit will be ruined for 7 years. This is a loaded assumption and one we mean to break down and dispel right now.
Let’s start with a few facts about your credit:
- Any late payments to credit and R9s (defaulted debts) report to your credit for 6 years following the date it is paid (back up to date).
- A bankruptcy stays on your credit report for 6 years from the date that you are discharged.
- A consumer proposal stays on your credit for 3 years from the date that it is paid in full.
So, right away you will likely notice that of the 3, the consumer proposal is the one that actually remains on your credit for the shortest period of time.
The great thing about a consumer proposal is that, once filed, it can be paid off at any time. This means that you can make more than your monthly payments whenever you wish to ensure that it is paid off quickly. This is one of the most important aspects of rebuilding after a consumer proposal. For example, if your proposal is paid off in 2 years, it would be completely off your credit report in 5 years, less time than if you had just left a defaulted item there.
Additionally, even while the consumer proposal is on your credit report you can rebuild. Many lenders will extend mortgage financing to people who have a paid off consumer proposal with 1-2 years of strong, re-established credit. Using products such as a secured credit card to rebuild while in your CP are a good idea, because once the CP is paid, you won’t have any credit on your report (and lenders will want to see some credit history).
So, does a consumer proposal ruin your credit? Chances are, if you are loaded in debt, have maxed out credit cards, made late payments to credit, or had accounts go to collections, your credit is already bruised. If this is the case, a consumer proposal leaves you in no worse a position, but will get you out of debt.
Want to find out more about finally getting out of the vicious debt cycle that keeps you up at night?
Call DebtCare today at 1 (888) 890-0888.