How Does a Consumer Proposal Affect My Credit Score?

If you feel burdened by high debt balances and unmanageable monthly debt payments, you may be researching how a consumer proposal may benefit you. This is a type of debt management contract that your proposal’s administrator will negotiate on your behalf. The administrator will work with your creditors to renegotiate your debt balances and payments. The proposal is a legal document that all parties are bound to, and it may provide for the partial repayment of your debt as well as revised payment terms. You can use a consumer proposal calculator to determine how beneficial this type of debt management solution may be for you. However, it is important to understand how this will affect your credit rating too.

The Short-Term Effects on Your Credit Rating

Initially, you will likely experience a drop in your credit scores, but the severity of the drop will vary from person to person. You may be aware that any late payments being reported on your credit report will cause your scores to lower. Furthermore, having high account balances, a significant amount of debt spread across multiple accounts or both will also cause your scores to be lower. If you are considering using a consumer proposal for debt management, you may already have a lower rating as a result of your financial struggles. Therefore, for many consumers the additional decrease in scores by using a consumer proposal may be moderate or even nominal in some cases. However, if you have found a way to stay on top of your monthly payments up to this point and simply want to use a consumer proposal to reduce debt balances that are becoming unmanageable, you may experience a greater decrease in your rating over the short-term.

The Long-Term Effects on Your Credit Rating

For many consumers, a consumer proposal provides lasting, long-term debt relief. This is a type of debt management agreement that can eliminate a portion of your debt and can make it easier for you to reduce the remaining debt balances. Those who make the effort to avoid becoming burdened by debt after using a consumer proposal by making lifestyle adjustments will ultimately notice that their credit rating increases over time. You should be aware, however, that a consumer proposal may be visible on your credit report for up to three years. In addition, it is important to note that a consumer proposal will not prevent you from taking on additional debt in the future. It is possible for a consumer who does not make lifestyle changes with regards to spending habits to continue to struggle with debt after using a consumer proposal.

If you believe that a consumer proposal can benefit you, you should take time to visit to learn more.

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