Consumer Proposal Settlement: Credit Rating Implications
When filing a proposal the individuals must be aware that the settlement may have a negative impact on their credit score. There are a number of things that need to be considered when assessing the overall affect of the consumer proposal on the individuals credit score.
Usually, there are two types of scenarios:
1. The persons credit is great
2. The persons credit is poor
In the first situation, where the credit is great, the settlement will have a negative impact on the credit score. For the most part, individuals in this position have been paying everything on time but because of some unfortunate event or the realization that a settlement may be the only option left to actually pay off this debt, decide to stop making payments and seek a settlement.
In the second scenario the persons credit is already bruised by the large debt amounts, late payments, collections, etc. In these types of situations the consumer proposal settlement may actually increase the persons credit rating as the debts are settled, a monthly payment plan established, collections have stopped and the wage garnishment have been withdrawn.
Regardless of the above mentioned situations, the credit report will show an R7 for 3 years after the debtor(s) have finished paying the consumer proposal settlement. It must be noted that different credit reporting agencies may have different policies. The consumer proposal will come off the credit report 3 years after the fullfillment date but the individual credit accounts will stay for the total of 6 years from the date of last activity.
Generally, the lenders see a settlement as a high risk and the debtor may have to pay higher interest rates on the credit. The lenders need to see responsible spending habits and on-time monthly payments for other debts listed in the individuals credit file. Applying for a secure credit card after filing the proposal will help to rebuild credit and provide some data for the lenders to evaluate the persons financial responsibility.
It is realistic to rebuild credit in few years after filing the consumer proposal settlement, provided people adhere by all the conditions of the proposal and fulfill the payment obligations.
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