Life After a Consumer Proposal: Credit Repair, Loans & A Fresh Start

One of the most popular consumer proposal questions we get has to do with life after the proposal. Applicants often inquire about the impact on their credit scores, will they be able to get a loan in the future, and is it ever possible to go back to a normal financial life. If you’re considering a consumer proposal but wondering about these types of questions, this article is for you.

To start off, let’s recap what a consumer proposal is – it is a legal negotiation with your creditors to reduce the debt amount, stop interest and get better payment terms. In a nutshell, you’re asking for better terms because you’re struggling to fulfill the original loan or credit terms. You may have lost your job, had a medical emergency, or debts simply piled up over time and now it’s impossible to pay them back.

Whatever the reason, creditors realize that from time to time people will have trouble paying them off and in most cases are willing to accept the proposal as it offers them more benefits than bankruptcy.

However, a consumer proposal is still considered “a default” since the debtor cannot continue with the original agreement. This is the reason why the credit file gets flagged and debtors need to rebuild credit scores and prove their creditworthiness starting from scratch.

How Severe is the Impact on Your Credit

Once the Credit Bureau is notified that you filed a consumer proposal your credit file will be marked with an R7 rating. It will remain in this state for the duration of the proposal (24, 36 or 60 months for example) plus 3 years after the completion of the proposal.

Technically, the shorter the repayment plan the less time your credit rating reflects an R7.

It’s important to note that if you’ve been late, missed a few payments, or continually exceed your credit limit, your credit score is likely deteriorating even without an “official default”.

Is it Possible to Get a Loan While in the Proposal?

The short answer is yes. It is always possible to get a loan. The question is at what interest rate and what amount. Even after the consumer proposal is reflected on your credit report, places like “pay day loans” and “any credit car loans” can provide you with a loan. This is because they’re charging really high interest rates, compensating for any defaults. In addition, they review your income situation thoroughly and will only approve financing if you have a solid job. Private loans and student loans are also accessible, but the main question is – if you’re in the proposal to get rid of debt and get your financial house in order, will these new loans help or set you back…

Finally, if you’re thinking of applying for an unsecured Line of Credit or a Credit Card, approval is unlikely – at least until the proposal is paid off and you’ve begun to rebuild your credit.  You may however be approved for a Secured Credit Card if you have the funds available to pay the upfront security deposit.  More on this below.

Starting Fresh

So how do you rebuild you credit and begin with a fresh start…

The first thing to remember is that you don’t have to wait until the proposal is paid off. After 90 days from acceptance you can apply for a secured credit card with Capital One, HomeTrust or any other financial institution. Keep in mind that the card has to be a real credit card, not the pre-paid one anyone can buy at the grocery store.

Also, if Capital One is one of the creditors included in the proposal, your secured card may not be approved. Apply only to places you’ve never been before, or at least that are not a part of the proposal repayment plan.

The second thing to consider is that for the fastest credit repair you need as many accounts in good standing as possible. Having that one secured card is not enough to show you can make payments on time. If possible, get two or three secured cards and pay them off at every due date.

After your proposal is completed (24, 36 or 60 months for example), wait about 60 days and once the new status is posted on your credit bureau file apply for a department store card.

You’ll be surprised that in about 6 months (after the proposal has been paid off) some of the secured creditors will send you applications for unsecured cards or limit increases.

Pay everything on time and upon completion of 3 years, the consumer proposal note will be lifted completely and your credit score will make a nice jump. If you have been paying your cards on time, avoiding additional collections, and maintaining other payments, your score may jump into low 700’s – which is pretty good for getting approved for loans, mortgages, and any other financing with reasonable rates.

The most important thing to remember – don’t fall for those credit card offers the second time around. Use what you need and manage your finances wisely to avoid falling into the debt trap again.

In conclusion – as you’ve read above, the consumer proposal may set you back a few years, but in exchange it offers zero interest rate charges, debt reductions of up to 70% and a second chance at your finances. For most people, these benefits far outweigh the stress from barely making your payments on-time, dreaded collection calls, and potential legal action from creditors.

If you have questions or would like to get a free consultation, click below to schedule your no-obligation call with our licensed proposal administrators.