Improving your Credit Rating after a Consumer Proposal
One concern that many people have about filing consumer proposal in Ontario is what will happen to their credit rating. A lot of people worry about their credit being destroyed forever and never being able to get a loan again. In the vast majority of cases, these fears are exaggerated. Unfortunately, many creditors attempt to scare people into paying them by telling them that their credit ratings will never recover from filing consumer proposal. In fact, some people have been told that simply speaking with a trustee in bankruptcy about your financial situation will ruin your credit rating permanently.
The first thing to remember is that, if you are in a position where filing a consumer proposal makes sense for you, you have likely missed some debt payments or made payments late. This means that your credit rating is likely already quite low. Speaking with a trustee and potentially filing consumer proposal in Ontario will lead to improving your financial situation, not hurting you.
In addition, it’s important to note that you credit rating is not affected forever by a consumer proposal (or even by a bankruptcy). You can rebuild your credit in time. By taking the right steps and by being smart with your financial decisions, rebuilding and improving your credit rating is certainly possible.
Consumer Proposal and your Mortgage
Another concern that many have is how filing consumer proposal in Ontario will impact their mortgage. The good news is that, in the majority of cases, your mortgage will not be affected by a consumer proposal as long as you continue to make your payments. A mortgage is a secured debt, not an unsecured one, so it is not included in a consumer proposal.
As long as you continue to make your mortgage payments, there should be no issue with your mortgage provider and you should be able to keep your home.
If you end up having to renew your mortgage while you are under consumer proposal, you should not have trouble qualifying for a renewal as long as your mortgage payments have been on time in the past and you can show the lender that you can continue to make payments.
How Filing Consumer Proposal Affects your Credit Rating
When you file a consumer proposal, your credit rating is revised to note this. Your credit report will list “R7” which means that you are noted as being in consumer proposal, consolidation or a debt management plan. This rating will likely remain for the duration of the proposal.
When you complete your consumer proposal and receive your Certificate of Full Performance, you should send a copy of this report to the major credit bureaus so that they can update your report. In Canada, the two major credit bureaus are Equifax and TransUnion. Once the credit unions are told that your proposal has been completed, your credit report is updated to reflect this. A note about your consumer proposal remains on your credit report for three years after the completion of the proposal.
Rebuilding your Credit Rating after Filing Consumer Proposal in Ontario
There is no “quick fix” to rebuilding your credit and improving your credit rating. It’s important that you avoid companies that claim to be able to go into your credit report and make changes instantly. You cannot fix your credit report in a day or two, no one is able to change the information that is in your credit report, and you cannot pay to improve your credit report.
The only way to improve your credit report is to follow good credit habits. This is true if you have filed a consumer proposal or if you have hurt your credit rating by missing payments or making late payments.
In order to improve your credit rating, you will need to show that you are able to borrow money and pay it back on time. Making payments on time is an important part of building your credit.
One way that you can improve your credit rating is by using a secured credit card. This method can be helpful for those who have filed a consumer proposal and are finding it difficult to get a loan or a more traditional credit card. With a secured credit card, you put down a deposit that the lender holds as security for as long as you have the card. That deposit becomes the limit for the card.
For example, if you put down $500, you then have a credit card with a $500 limit. You can then use this card like a regular credit card. Making purchases on this card and paying the balance owing each month can show the credit bureaus that you are able to responsibly borrow money and pay your bills on time. Over time, this activity will improve your credit rating. A prepaid credit card, where you can use the card until the amount on the card is exhausted, has no impact on your credit rating.
As you can see, filing consumer proposal in Ontario is not the end of your financial life. In fact, it can put you on the right path to rebuilding your finances and towards a positive financial future.