One of the questions we’re asked most often has to do with filing for a consumer proposal and your credit score. Many people want to know – if you file for a proposal, will your credit be ruined?

The answer isn’t as simple as “yes” or “no.”

To start, we need to look at what classifies as having “good” credit. If your credit score is in a high range, but you’re considering filing for a consumer proposal, we’re going to hedge a bet and say you probably don’t have “good” credit.

Good credit is more than just your score. If you’re loaded in debt, have maxed-out credit cards, and are only making the minimum payments each month, that’s not good credit. Not to mention, it’s unsustainable for long-term financial health.

Your credit score is based on many factors, including the amount of new credit you take out, your payment history, and the amount of debt you carry. For example, if you have a total credit limit of $5,000 and consistently carry a high balance, your credit score will be impacted. So, if you’re in debt and struggling to make ends meet, it’s very likely your credit is already being affected.

Not only that, but then you have to consider the consequences of what would happen if you miss a debt payment completely. Defaulting on your current debts is the quickest way to get a bad credit score. Missing even one payment can be detrimental. And if you default on multiple accounts (phone bills, utilities, etc.) you might lose track of what’s been paid and what hasn’t, meaning your score will be harmed even further.

If you’re already struggling with debt, even if you’ve been making minimum payments, there may be a month where you can’t make that payment. Or if Canadian interest rates keep increasing, it could hike your debt up to an unmanageable level. And then your credit score will be hurt anyways.

Worse still, if you do default on a payment, that bad credit will remain for seven years after it’s resolved. This means it will stay after it’s paid in full, settled in full, or included in a consumer proposal, credit counselling, or bankruptcy.

Now let’s look at the other side of the coin: filing for a consumer proposal.

A consumer proposal stays on your credit for three years after it is paid in full. Typically, many people pay off a consumer proposal in four or five years, so the consumer proposal credit score could stay on your record for seven or eight years if you follow this path. But because you make a single settlement that addresses all debt, once the creditors accept it, you don’t have to take four or five years to pay if off. If you have the funds, it can be paid in full at any time.

Plus, if you can make more than the minimum payments, you can pay off a consumer proposal sooner and start credit repair that much quicker.

You can also start rebuilding credit right away after filing for a consumer proposal. Getting a personal loan or a secured credit card that reports to your credit report are two great ways to do it.

Traps you want to avoid in either case, whether you file for a consumer proposal or not, are things like payday loans or creating more unsecured debt, like adding another unsecured credit card.

In short, if you’re considering filing for a consumer proposal because you’re at the end of your rope financially and not sure how you’ll continue to manage all of your debt, your credit is probably being harmed anyways. Filing for a consumer proposal could give you the opportunity to rebuild and start fresh.

At DebtCare, we understand how difficult it can be when you’re considering whether to file for a consumer proposal. We can help you weigh your options, deal with your debt, and, if needed, rebuild credit.

Call us today for a free consultation: 1 (888) 890-0888.