How Does a Consumer Proposal Affect Your Credit Score?



Consumer proposals are a lifeline for individuals overwhelmed by debt in Canada. These legally binding agreements allow you to negotiate more manageable terms with your creditors and provide relief from the burden of unmanageable debts. However, like most debt management solutions, consumer proposals come with their own set of consequences, particularly for your credit score. In this article, we’ll delve into the intricacies of how a consumer proposal impacts your credit score and what steps you can take to mitigate its effects.

Understanding a Consumer Proposal

A consumer proposal is a formal arrangement facilitated by a Licensed Insolvency Trustee (LIT) in Canada. It’s an alternative to bankruptcy that allows you to make a formal offer to your creditors to pay back a portion of your debts, often with reduced interest and an extended repayment period. Once accepted, the proposal becomes a legally binding contract between you and your creditors.

How a Consumer Proposal Affects Your Credit Score

  1. Initial Impact: When you file a consumer proposal, it is reported to the credit bureaus, and your credit report will reflect this. This notation is typically coded as an R7 rating, signifying that you are making arrangements to repay your debts through a consumer proposal. While it’s not the most damaging credit notation, it does have a negative impact on your credit score.
  2. Credit Score Reduction: The exact impact on your credit score will vary depending on your unique financial history and the details of your proposal. However, most people can expect a significant reduction in their credit score, often dropping into the fair or poor range.
  3. Reporting Duration: A consumer proposal will remain on your credit report for a specified period, typically three years after you complete all your payments as per the proposal terms. This means that your credit score may be affected for several years.
  4. Limited Credit Access: During the period when the consumer proposal is on your credit report, obtaining new credit, such as loans or credit cards, can be challenging. If you are approved for credit, you may face less favorable terms, such as higher interest rates or lower credit limits.
  5. Impact on Existing Accounts: Accounts included in the consumer proposal will also show as “R7” on your credit report, indicating that they are in arrears. This can negatively affect your creditworthiness.

Rebuilding Your Credit Score After a Consumer Proposal

While a consumer proposal can have a substantial impact on your credit score, it’s not an insurmountable obstacle. You can take steps to rebuild your credit over time:

  1. Stick to the Proposal Terms: Ensure that you make all payments as agreed upon in your consumer proposal. Consistently meeting these obligations demonstrates responsible financial behavior to future creditors.
  2. Create a Budget: Develop a realistic budget that allows you to manage your finances effectively. This can help you avoid accumulating new debt and ensure that you can meet your financial obligations.
  3. Secured Credit Cards: Consider applying for a secured credit card. These cards are often easier to qualify for after a consumer proposal. Responsible use, including making timely payments, can help rebuild your credit.
  4. Monitor Your Credit Report: Regularly review your credit report to verify that all information is accurate and up-to-date. If you spot any errors, dispute them promptly to have them corrected.
  5. Seek Financial Guidance: Consulting with a credit counseling agency can provide valuable insights into managing your finances and establishing a solid financial foundation.


While a consumer proposal may initially lead to a decline in your credit score, it’s essential to remember that it’s not the end of your financial journey. With responsible financial management, timely payments, and a commitment to rebuilding your credit, you can gradually improve your credit score and work towards a healthier financial future. Patience and diligence are key as you navigate the path to financial recovery after a consumer proposal.

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