A consumer proposal could be the right solution to debt for several reasons. You are able to repay part of your debts. You want to keep your property, including your home. You want to avoid declaring bankruptcy. Whatever your reason for submitting a consumer proposal, one of the realities behind this solution is that it will have an impact on your credit rating. The good news is that you can restore your credit rating once the consumer proposal is completed.
How does a consumer proposal affect my credit rating?
In Canada, credit reporting agencies keep a credit report or file containing all of your credit history. Your credit rating is determined by your history with lenders and creditors. Do you pay all your bills on time? Or are your accounts often overdue by 30, 60, 90 days or more? The credit ratings assigned range from R1 (best) to R9 (worst). When you pay your bills and loans on time, you get good credit. If you’re having trouble paying off all of your debt, chances are your credit rating has already suffered. You get an R9 rating when you declare bankruptcy and an R7 rating when you file a consumer proposal. You can learn more about credit, score and credit ratings from the Office of Consumer Affairs.
The consumer proposal obviously has an impact on your credit rating, but that impact is still less significant than that of bankruptcy. In addition, as part of a consumer proposal, you can keep your goods; It is therefore not surprising that the number of consumer proposals in Quebec continues to increase each year.
So how will you restore your credit rating following a consumer proposal? Here are some strategies to consider:
Respect your budget, make your payments and prioritize savings
To track your income and expenses effectively, it is important to have an accurate budget. You can do this by using a budget spreadsheet like this one. Enter the amount of your net income and each of your expenses, for example childcare, utilities, groceries and entertainment, and that’s it.
Once you’ve established your budget, it’s important to do two things on a regular basis: make your bill and debt payments on time and prioritize savings. When lenders examine your credit, they recognize savings as property and will likely be more likely to offer you a more favorable interest rate. Conversely, if you are used to making late payments, the rate they will offer you may be higher.
Establish your credit with a guaranteed credit card
Even if your credit rating from a consumer proposal is unlikely to allow you to get a traditional credit card, you can still start restoring your credit during the process. To get a secured credit card, you will need to make a deposit before borrowing money. This deposit will be your credit limit. While there are often fees associated with such a card, if you pay off your balance on a regular basis, in full and on time, your rating will improve.
Restoring your credit is a good first step to regaining financial health and security. Find lots of other savings and debt relief tips by following us on Twitter and Facebook.