A consumer proposal is a helpful debt relief option for those struggling with paying back their creditors. For those who may not know, a consumer proposal is a legally binding agreement that you make with your creditors. In this agreement, you will pay back a portion of the debt you owe, with no interest included. You will have as long as five years of monthly payments to make, and during this period, your creditors aren’t allowed to make collection calls or file legal proceedings against you. However, you can only file a consumer proposal with the help of a Licensed Insolvency Trustee. They will arrange and negotiate with your creditors on your behalf.
While you may be relieved of the stress associated with debt, once the consumer proposal is filed, you do have the option to rebuild your credit. You might be wondering: How can I rebuild my credit?
We’ll be going over everything you need to know involving credit cards and rebuilding your credit:
What Happens After Filing a Consumer Proposal?
How Will It Affect My Credit?
When you choose a consumer proposal, it can affect your credit rating and remain on your credit report for a maximum of 6 years from the date you originally filed. However, if you can manage to pay your consumer proposal faster, the length of time can decrease on your credit report.
Reported credit can include loans, credit cards, and utility bills. They will show on your credit report, and you will receive a credit rating. Revolving credit (such as credit cards or lines of credit) will have a range between R1 (good) and R9 (not good). The further down the rating scale you go, the more negative the impact. During a consumer proposal, your credit will show accounts included in the proposal as an R9, and once complete, an R7 will show on your credit report.
Can I Still Get a Credit Card?
Once you’ve filed a consumer proposal, you may choose to acquire a credit card. If the credit limit is more than $1,000.00, you will need to advise the creditor of your proposal prior to opening the account. It might be helpful to discuss your options for credit at the credit counselling sessions offered by your Licensed Insolvency Trustee. During these sessions, you will also learn techniques and tools to manage your credit. They can also advise you on how to apply for a secured credit card.
Secured Credit Card
What exactly is a secured credit card?
Secured credit cards work like regular credit cards but are backed by a cash deposit from the cardholder. The bank holds your cash on deposit, and extends you credit for the amount you’ve provided. At the end of the month, you get the credit card bill and should pay your bill in full. If you don’t, the financial institution will use a portion of your cash on deposit to reduce the amount outstanding, and adjust your credit limit accordingly. Secured credit cards are beneficial as they will be reported to the credit bureau and assist you in rebuilding your credit score.
Living without a credit card can be extremely difficult, especially with the number of daily transactions people usually make. A secured credit card will be able to help you make the necessary transactions while rebuilding credit in the process. However, you must remember that paying on time and managing your balance will be what helps your credit score. Rebuilding credit takes time and effort. During this period, you’re going to want the major credit bureaus to see that you’re using your secured credit card responsibly, showing lenders that you can borrow money and repay it.
How Can I Rebuild My Credit?
Here are some other ways in which you can rebuild your credit after filing a consumer proposal:
- Don’t wait until you’ve completed your consumer proposal. Once you feel you are in a position to responsibly obtain credit, open a small account and utilize that time rebuilding your credit.
- You may choose to apply for a car loan. While it can be hard to get approved for a loan with poor credit, there are auto dealerships and lenders that work with individuals under a consumer proposal. Consistently paying your loan will help rebuild your credit.
- Similarly, you can consider asking the bank for a small RRSP loan, as some banks will often have special offers on interest rates for this type of loan. Making your payments on time with this loan can help rebuild your credit too, while at the same time creating a future asset for you (the RRSP).
- Paying your secured credit card in full and make the minimum monthly payments before they become due.
- Licensed Insolvency Trustees can provide information and tips to manage your credit, so it’s integral that you follow their advice when rebuilding your credit.
- Monitor your credit report for any errors that can come up, and work with the bureaus to correct them.
What If There Are Errors on My Credit Report?
You should always make sure that credit bureaus are reporting correctly, as Licensed Insolvency Trustees aren’t able to do so. You can request a free copy of your credit report from the two major credit bureaus in Canada: Equifax and Transunion.
Sometimes there can be mistakes in your credit report. You should indicate that the agreement you’ve made is shown as a consumer proposal and not as a bankruptcy. Double-check the dates that the proposal went into effect and that the performance dates of your consumer proposal are properly outlined.
Consumer proposals are an effective way to help you on your way to becoming debt-free. If you’re seeking debt relief options and want to know more, make an appointment for a free consultation today. We have years of knowledge and the experience needed to help you find the right choice for your financial situation.