TLDR
Filing a consumer proposal will lower your credit score
Debts included in a consumer proposal are typically rated R7 on your credit report
It can remain on your credit report for up to 3 years after completion or 6 years from filing
You may still be able to access credit but with stricter terms.
Credit rebuilding is possible with consistent habits.
When debt becomes overwhelming, a consumer proposal may offer a solution. A consumer proposal allows you to negotiate repayment with your creditors, agreeing to pay a portion of the debt based on what you can afford.
However, consumer proposals can affect your credit score, although the impact may be less severe than filing for bankruptcy. If you’re considering this option, understanding how a consumer proposal affects your credit score in Canada, and how long the impact lasts, can help you plan your next steps.
Filing a consumer proposal will lower your credit score and assign an R7 rating to included debts. The impact can last for several years but is typically less severe than bankruptcy.
How a consumer proposal works
A consumer proposal is a legal arrangement in which you agree to pay off a reduced amount to clear your debts with creditors. You’ll draft the proposal terms with the guidance of a Licensed Insolvency Trustee (LIT) who then negotiates with your creditors on your behalf.
Assuming your creditors approve, you’ll pay an agreed-upon amount each month. It can take up to 60 months to finish a consumer proposal and once complete, you’re done paying off the debts.
How a consumer proposal affects your credit score
Filing a consumer proposal is considered a significant credit event and will typically lower your credit score. There is no fixed number of points your score will drop, as it depends on your starting score and credit history. However, most people will see a noticeable decrease once the proposal is filed and reported.
How a consumer proposal appears on your credit report
Your credit report is a collection of information about your debts, including how much you owe, the types of debt you have and your payment history. Equifax and TransUnion are the two main agencies responsible for creating credit reports in Canada.
When you file a consumer proposal, it becomes a formal record on your credit report that lenders and anyone authorized to check it, can see.
What lenders can see
- The date you filed
- Your consumer proposal completion date
- Which debts were included in the proposal
Once you have a consumer proposal on your credit report, it can remain there for up to three years after making the final payment to the plan or six years after you sign the proposal, whichever is sooner.
Understanding Credit Ratings (R1-R9)
Debts included in a consumer proposal are typically assigned an R7 rating, meaning you’ve agreed on a settlement agreement with your creditors. For comparison:
- R1 is considered perfect credit
- R7 indicates a consumer proposal and that debt is being repaid under a settlement agreement
- R9 represents bankruptcy – the lowest rating possible
How long does a consumer proposal affect your credit?
A consumer proposal can remain on your credit report for:
- Up to 3 years after you complete the proposal, or
- Up to 6 years from the date you file, whichever comes first
This is one of the most important factors affecting your long-term credit recovery timeline.
Can you get credit during a consumer proposal?
It’s possible to get credit during a consumer proposal, though your options might be limited. Lenders may see you as being higher risk which can result in:
- Lower approval odds
- Higher interest rates
- Smaller credit limits
Some individuals may consider secured credit products to begin rebuilding their credit history during this time.
Consumer proposal vs bankruptcy: credit impact
Both options affect your credit, but bankruptcy generally has a more severe and longer-lasting impact. For many Canadians, a consumer proposal may offer a more manageable path to rebuilding credit over time. For more detailed comparisons between the two options read our guide.
How to rebuild your credit after a consumer proposal
Filing a consumer proposal may hurt your credit scores, but the damage likely isn’t permanent and you can start rebuilding your credit while you’re still in a consumer proposal. Steps that can help improve your credit over time include:
- Paying bills on time
- Keeping balances low
- Using a secured credit card
- Monitoring your credit regularly
Consistent habits can gradually help restore your credit profile.
How to avoid getting back into debt
Building a realistic budget and maintaining financial discipline can help reduce the risk of falling back into debt.
- Create a monthly budget
- Avoid over-use of credit
- Pay credit card balances in full
- Monitor spending regularly
FAQ
There is no fixed number of points but filing a consumer proposal is considered a significant negative event and will typically result in a noticeable drop in your credit score.
Generally, yes. A consumer proposal results in a R7 rating while bankruptcy is rated R9, which has a more severe and longer-lasting impact.
A consumer proposal stays on your credit report for up to 3 years after completion or 6 years from the filing date, whichever comes first.
Yes, with consistent habits like on-time payments and responsible credit use, it’s possible to gradually improve your credit score over time.
Yes, though options may be limited. Secured credit cards are often more accessible and can help rebuild credit.
Additional Resources
Want more tips on rebuilding your credit after filing a consumer proposal or bankruptcy? Read 6 Ways to Rebuild Your Credit Score.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
