When it comes to consumer proposals, there are inevitable and understandable questions about the impact on your credit score.

While there is damage to your credit, it’s not permanent. You can resolve your debts and rebuild your credit score.

Let’s look at how a consumer proposal affects your credit score and what you can do to recover.

How does a consumer proposal appear on your credit report?

When you file a consumer proposal, the Office of the Superintendent of Bankruptcy sends your bankruptcy information to Canada’s two major credit bureaus; Equifax and TransUnion.

A record of your consumer proposal appears in the public records section of your credit report alongside the date it was filed.

myEquifax Canada: Public Records
Your consumer proposal appears in the public records section of your credit report.

Every credit account is assigned a credit rating code from 1 to 9. The best credit rating possible is 1, which means you make payments on time. The worst is 9, meaning you have debts in collections or were bankrupt.

Payment history on credit reports - credit ratings

Your creditors will update the credit rating code on the account to a 7 with a rating code description stating that the account was included in a proposal. This tells lenders that you are making regular payments through this agreement.

Your creditors will update the rating code on the credit account to a 7 with a rating code description stating that the account was included in a consumer proposal.

Creditors sometimes mistakenly report that your account was part of a bankruptcy, but this is nothing to worry about. The correct status can be found in the public records section of your credit report.

A credit card account in a consumer proposal is marked as R7 on your credit report because it’s a revolving credit account. A loan account is marked as I7 because it’s an installment account.

7 credit rating for credit accounts in a consumer proposal

Upon completion, you will receive a Certificate of Full Performance, officially releasing you from the debts in your proposal. These debts are removed from your credit report. New lenders will only see creditors that you have added since filing.

How long does a consumer proposal stay on your credit report?

A consumer proposal appears on your credit report for 3-6 years after completion.

A consumer proposal appears on your credit report for 3-6 years after completion.

Your consumer proposal on an Equifax credit report

A consumer proposal will be removed from your Equifax credit report three years after you’ve completed your consumer proposal or six years from the date you filed your proposal — whichever happens first.

Your consumer proposal on a TransUnion credit report

On TransUnion credit reports, a consumer proposal disappears three years from the date you satisfied the proposal or six years after the date you defaulted on the account — whichever date comes first.

How to remove a consumer proposal from your credit report

Complete a consumer proposal as soon as possible, and it will drop off your credit report faster. Here are some examples:

Five-year proposal: If you complete a consumer proposal over five years, your consumer proposal drops off your credit report one year after you complete your proposal, which is a total of six years.

One-year proposal: If you complete a proposal in one year, your consumer proposal drops off your credit report three years later, a total of four years.

Lump-sum proposal: If you pay a lump sum to complete a consumer proposal, your consumer proposal drops off your credit report three years later. This is the fastest way to remove a consumer proposal from your credit report.

Good to know: credit repair companies cannot remove a consumer proposal from your credit report.

How does a consumer proposal affect my credit score?

A consumer proposal lowers your credit score, but it erases debts dragging it down. It’s harder to get credit, but your credit score is probably already low if you have unpaid debts.

Dealing with your debts is the first step, and you can rebuild your credit score immediately.

How a credit score is calculated in Canada

Creditors and collection agencies often tell people that a consumer proposal will damage their credit score forever, but this is not true.

Can you get credit while in a consumer proposal?

You can access credit in a consumer proposal, but it depends on several factors, such as your income.

You’ll likely find it challenging to obtain credit. When you do, you’ll pay higher interest rates and fees. Decide if credit at a higher rate is worthwhile or needed; can you wait for a better rate?

A consumer proposal allows you to start again with no debts, so embrace the second chance and be patient when repairing your credit.

Start improving your credit by showing creditors that you can responsibly borrow money and pay it back through a secured credit card.

Wrapping up

A consumer proposal affects your credit score and appears on your credit report for 3-6 years, but it doesn’t impact your credit forever. You can rebuild your credit faster without the burden of debt.

To learn more, connect with a Licensed Insolvency Trustee for a free consultation.

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