How starting a consumer proposal works to improve a bad credit rating in Ontario
Consumer Proposals & Credit Ratings
One of the most common questions we hear as Insolvency Trustees is, “How much will my credit score go up after completing a Consumer Proposal?”
It’s an understandable concern; after all, the state of your credit score can significantly affect your financial future.
Here, we aim to shed some light on what you can expect when it comes to your credit score following the completion of a Consumer Proposal.
Your Credit Score Today
Many people considering a consumer proposal realize that their credit rating is already maxed out, and may not be that good.
Taking a positive step by speaking with a trustee and filing a consumer proposal can only help improve your ratings. Consumer rating companies will see that you’re taking action and treat this as a positive.
Many people find that the effect of some counseling, getting taxes straightened out, and reducing the amount of the debt improves their credit rating dramatically.
Credit Score Impact: The Basics
Firstly, it’s crucial to understand that a Consumer Proposal does have an impact on your credit score, but much less so than a bankruptcy.
While the negative effect is not as severe, it’s not negligible either. A Consumer Proposal will be marked on your credit report for a period of three years after you complete all the terms, or six years from the date of filing, whichever comes first.
The Potential Boost
The good news? Once you’ve successfully completed your Consumer Proposal, the proposal serves as a positive mark on your credit report, capable of boosting your score by 40 to 50 points.
However, credit score algorithms can be complex, and these numbers are merely guidelines.
Factors like the amounts, your payment history, debt utilization, and new credit accounts will all play a role in determining how significantly your score will increase.
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The Road to Financial Recovery
Completion of a Consumer Proposal can be a significant milestone for your credit rating and road to financial stability.
After the period of negative credit reporting has ended, you’ll likely find it easier to qualify for new credit, loans, or even a mortgage.
However, it’s vital to approach this newfound financial freedom with caution. Now is an excellent time to build upon positive financial habits, ensuring your credit score continues to improve and remains strong forever.