How Does a Consumer Proposal Affect Your Credit Score?



Financial challenges can happen to anyone, and sometimes individuals find themselves unable to meet their debt obligations. In Canada, one option for managing overwhelming debt is a consumer proposal. While it can provide relief from immediate financial strain, it’s crucial to understand how a consumer proposal can impact your credit score and your financial future. In this article, we’ll delve into the relationship between consumer proposals and credit scores.

Understanding Consumer Proposals

A consumer proposal is a legal process in Canada governed by the Bankruptcy and Insolvency Act. It allows individuals to negotiate a settlement with their creditors to pay back a portion of their debts over a set period, typically up to five years. Unlike bankruptcy, which often involves the liquidation of assets, a consumer proposal allows you to retain your assets while working towards debt resolution.

The Impact on Your Credit Score

  1. Initial Credit Score Drop: When you file a consumer proposal, it will have an immediate negative impact on your credit score. Your credit rating will likely decrease significantly. This drop occurs because you are essentially informing creditors that you are unable to fulfill your original debt agreements.
  2. R7 Credit Rating: The credit reporting agencies in Canada, Equifax and TransUnion, typically assign an R7 credit rating to consumers who have entered into a consumer proposal. This rating indicates that you have made an arrangement to settle your debts through a proposal.
  3. Creditors’ Reporting: All creditors involved in your consumer proposal will report this information to the credit bureaus, which will be reflected on your credit report. This reporting can remain on your credit report for up to three years after you complete the proposal or six years from the date you filed it, whichever comes first.
  4. Credit Rebuilding: It’s important to note that a consumer proposal is not the end of your credit journey. While it does have a negative impact on your credit score, it also provides an opportunity for you to start rebuilding your credit. Responsible financial behavior during and after the proposal can gradually improve your creditworthiness.

Tips for Rebuilding Your Credit After a Consumer Proposal

  1. Create a Budget: Develop a detailed budget that outlines your income and expenses. Ensure you can meet your financial obligations, including the payments required under the consumer proposal.
  2. Make Timely Payments: One of the most significant factors in rebuilding your credit is making payments on time. This includes not only your proposal payments but also other financial commitments like utility bills and rent.
  3. Open a Secured Credit Card: After completing your consumer proposal, consider opening a secured credit card. These cards require a security deposit, but they can help you rebuild your credit as long as you use them responsibly and make timely payments.
  4. Limit New Credit Applications: Avoid applying for multiple new credit accounts in a short period, as this can negatively impact your credit score. Instead, focus on managing your existing debts wisely.
  5. Monitor Your Credit Report: Regularly review your credit report to ensure that the information is accurate. Dispute any errors you may find.


A consumer proposal is a valuable tool for Canadians struggling with overwhelming debt, offering a structured way to regain control of their finances. While it does have an initial negative impact on your credit score, it’s not a permanent setback. With responsible financial management, timely payments, and a commitment to rebuilding your credit, you can gradually improve your creditworthiness and work towards a brighter financial future. Remember that seeking advice from a financial counselor or credit specialist can also be beneficial as you navigate the post-consumer proposal period.

Leave a reply