Consumer proposal and its impact on credit rating
Overwhelmed with debt and looking for relief? Wondering if bankruptcy is your only option? Well the good news is that it’s not. Individuals struggling with debt issues are often looking at consumer proposals as a solution with benefits like a reduced impact ton their credit rating as compared to when filing for bankruptcy.

Understanding possible Credit ratings
In order to understand credit rating in Canada, there is a sequence of numbers raging form 1 to 9 represented by the alphabet R. Each creditor you owe money to assigns you a specific score on your credit report. Here is what each of these ratings mean:
1. R1 means you pay loan on time.
2. R2 means your payments are 30 days late.
3. R3 means your payments are 60 days late.
4. R4 means your payments are 90 days late.
5. R5 means your payments are 120 days late.
6. R6 means typically not used.
7. R7 means you are in a consumer proposal, debt management plan or a consolidation order.
8. R8 means that a secured creditor has taken steps to realize on their security (e.g. repossessed your car).
9. R9 means bad debt placed for collection or considered un-collectible, or you are bankrupt.
This means the credit ratings you want on your credit report is R1 and pray that matters don’t go to R9.
One of the most common questions that comes up during initial consultations is how will my consumer proposal impact my credit rating. This apprehension in people generally is due to the misconception that once you file a consumer proposal you might not be able to attain loans.
Well, this is not the case.
Imagine you get into a minor car accident. In financial terms, it means you will not be able to pay your creditors in the promised time. Now imagine the same person gets into a second accident (or files a consumer proposal) few months after the first accident. Will he be able to get a loan or car insurance, maybe yes; but with higher insurance interest rates.
In such a scenario,once you fully paid off your consumer proposal, will only impact your credit rating for the next three years, before they consider approving your loans. Financial institutions will scan through your two year repayment history and then make judgment whether you are eligible for a loan or not. Numerous lending institutions (secondary) might lend you money shortly after you filed the consumer proposal. Although, the interest rates may be higher, an individual may be able to rebuild his credit rating over time and as a result get approved for credit borrowing from financial institutions.
Will I have to wait three years to apply for another loan?
The ability to borrow once you are done with your consumer proposal depends on many factors like your current income, amount you are borrowing and the value of assets you will be pledging as security.
It is best that you consult your credit counselor or list of lenders who will be able to lend you money upon your consumer proposal completion. Provided that you have sufficient income and appropriate down payments,with two credit cards with minimum limit $1,500 ; it is possible that you may qualify for new mortgage as soon as two years after completion of you consumer proposal.