With almost every consumer proposal I file, I am asked how the consumer proposal filing will impact your credit report. The two largest credit reporting agencies in Canada no longer provide a detailed description of their procedures, so my answer is mainly speculative. I assume they no longer provide that information it’s because, as a business, they don’t want to give away too much information for free. You are able to access your report once a year for free, but a lot can happen within 12 months time. With that caveat, here’s what I know:
Where It’s Noted On Your Credit Report
When you file a consumer proposal there will be a note in the Legal Items section of your credit report that notes the date of filing, and the name of your consumer proposal administrator. When you complete your consumer proposal, the date of completion also appears on your credit report. Here’s the key point:
The record of your consumer proposal will appear on your credit report for three years from the date of completion of your consumer proposal. It’s not the date of filing that matters; it’s the date that you complete your proposal that starts the three year clock.
How It’s Recorded
Perfect credit is coded as an “R1”. Bankruptcy in Canada is coded as an “R9”, the worst possible rating. A consumer proposal is an “R7”, so it’s not quite as detrimental as a bankruptcy, but obviously it’s worse than perfect credit. The R7 is the code used for all forms of debt negotiation, including a credit counselling debt management plan, or a debt settlement program. The key thing to remember, is that if you’re behind on payments and indebted enough to be thinking about a consumer proposal, chances are high you already have poor credit.
It is therefore in your best interests to complete your proposal as soon as possible. If you can pay it off early, do it, because it will be off your credit report that much earlier.
A consumer proposal is different than a bankruptcy filing, because the note about filing bankruptcy in Canada remains on your credit report for six years from the date of discharge. So, if you can pay your consumer proposal off quickly, it will be removed from your credit report more quickly than if you filed bankruptcy.