A credit card can be helpful for flights, hotels, or emergencies. So it makes sense that you want to hold on to your card when you file a consumer proposal.
Many people ask: Can you keep a credit card with a consumer proposal? The answer is yes, you can.
In this guide, we’ll look at how to keep a credit card in a consumer proposal and show you a quick and easy alternative if you can’t.
Can you keep a credit card with a consumer proposal?
If a credit card is included in your consumer proposal, you must hand it over to your Licensed Insolvency Trustee.
But you can keep an existing credit card in a consumer proposal if the card is not affected by your proposal and has a zero balance long before you file. The benefits are apparent. You can use a credit card to rebuild your credit faster.
To check if you can keep your credit card during a consumer proposal, ask a Licensed Insolvency Trustee.
Sometimes, your card issuer may suspend your card if you enter a consumer proposal. To avoid this, many people give up all their cards and start with a clean slate.
Can I get a credit card while in a consumer proposal?
Like any debt settlement agreement, a consumer proposal affects your credit so most lenders will turn you down at this early stage. If approved, you may be subject to higher interest rates and fees.
Until your financial situation improves, the best credit card for a consumer proposal is a secured credit card.
What is a secured credit card?
A secured credit card is like a regular card, except it requires you to put down a deposit secured against your credit limit. This allows the credit card issuer to take less risk when offering you credit.
Secured cards work similarly to debit cards. You have to pay a deposit which usually determines your credit limit. For example, if you deposit $500, you’ll be given a limit of $500. The minimum deposit is $50.
You receive the benefits of a regular card while being able to rebuild your credit during your consumer proposal.
Sensibly using a secured card will boost your credit rating because this information is reported to the credit bureaus. Just ensure that you use it regularly and make payments on time.
After a while, you’ll be able to get a regular unsecured card and get your deposit back for the secured card.
How to get a secured credit card
Many lenders offer secured credit cards to people in a consumer proposal because it’s a safe way to provide credit while you rebuild trust with lenders.
The secured credit card we recommend is the Neo Secured Credit Card because there is no hard credit check, no annual fees and unlimited cashback.
As long as you use the card regularly and keep up the repayments, you’ll demonstrate good credit behaviour, show lenders that you’re responsible, and increase your credit score.
Can I get a regular credit card after a consumer proposal?
You can get a regular, unsecured credit card after a consumer proposal once you have rebuilt your credit score.
Once you’ve made your monthly payments, you will be discharged from your consumer proposal, and all your unsecured debts included in the agreement will be forgiven.
Credit card providers use your credit report to determine that you are reliable at repaying credit. They look at many factors, like payment history, income, debt-to-credit ratio and debt-to-income ratio.
A potential lender will consider you a high risk because a consumer proposal appears on your credit report for at least three years after completion. On top of this, your previous lines of credit were included in the consumer proposal.
There isn’t any time limit on being approved for a credit card after a consumer proposal. You must establish new lines of credit, such as a secured credit card, and use it responsibly. You can rebuild your credit by doing the following.
Check your credit report
A credit report records how you use credit. Request a free copy of your credit report from Equifax or TransUnion. Ensure your credit accounts are in good standing and that you don’t owe any money.
Report errors on your credit report
Upon completion of a consumer proposal, unsecured debts should no longer appear as owed. If errors occur, notify the credit bureau immediately and provide a copy of your Certificate of Full Performance.
Pay your bills on time
Payment history accounts for 35% of your total credit score calculation. Paying your bills on time indicates to lenders that you’re reliable.
If you miss a payment, your lender will notify the credit bureaus, and your credit will suffer.
Keep your credit utilization low
Your credit utilization is the percentage of credit you use from your available credit limit.
Use less than 30% of your available credit to ensure your credit score doesn’t drop. For example, if you have a $3,000 credit card, keep your credit utilization ratio below $1,000.
How to improve your credit utilization ratio:
- Pay more than the minimum monthly payment.
- Spread high balances over other lines of credit.
- Increase your credit limit.
- Add more lines of credit.
By demonstrating that you can borrow money and manage repayments responsibly, you are more likely to pass a credit check. The higher your credit score, the better the interest rate and the higher your credit limit.
Need debt relief but worried about your credit?
Don’t let the impact on credit stop you from filing a consumer proposal. In the long run, a proposal will help you by enabling you to pay off your debts, which is essential for future credit.
And remember, you probably already have bad credit if you’ve skipped or been late with payments to creditors.
If you file a consumer proposal, you avoid personal bankruptcy, which can be more damaging to your credit.
Credit is only beneficial when you can afford to repay it. If you already have credit with high balances, the chances are you will be rejected for further credit anyway.
You can keep a credit card with a consumer proposal, but the card must have a nil balance before filing. Find out if you can keep it by speaking to a Licensed Insolvency Trustee.
If you want access to credit during your proposal, the best credit card for a consumer proposal is a secured credit card. It lets you rebuild your credit while giving you access to the benefits of a regular credit card while you complete your consumer proposal.
File a consumer proposal
Erase your debt by filing a consumer proposal.
- Lower your bills
- Keep your assets
- Freeze interest
- Stop collections
- Reduce your debt
It only takes 30 seconds and it's free.
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