Debt Consolidation / Consumer Proposal / Bankruptcy and my Credit Report

How will my decision affect my credit file?

It’s perfectly valid for you to be concerned about the impact of your decision – whatever it may be – on your credit report, given the influence it has on your borrowing ability.

However, keep in mind that your credit report may already be affected by your financial difficulties. To see if that is the case, the first step is to request a copy of your report from the 2 credit agencies, Equifax and TransUnion. This is a free.

Now let’s look at the potential repercussions:

Impact of debt consolidation on the credit report:

A debt consolidation will not harm your credit report. However, you will need to qualify for the consolidation loan, which usually carries an interest rate higher than a regular loan (between 12% and 14%). This higher rate will have a significant impact on the payment you will have to make each month to repay this loan.

Impact of a consumer proposal on the credit report:

The consumer proposal will impact your credit report. Indeed, the debts will be rated R-9 during the proposal and R-7 for 3 years from the end of your proposal.

However, note that if you’ve kept a house, a car, or a credit card during your proposal, your good repayment habits will be noted in the report and will help you rebuild your credit once the proposal is over and your debts are cleared. Also, even if your credit report is in good standing now, if you are over-indebted, you will likely have difficulty obtaining a loan due to your limited financial capacity to reimburse the consolidation loan. Therefore, the impact of your decision to make a proposal on your credit report is certainly one element to consider, but it is not the only one. Achieving a balanced budget, having no debts or at least a reasonable amount of debt, and peace of mind should be your ultimate goal.

Impact of bankruptcy on the credit report:

Bankruptcy will also impact your credit report. Debts will be rated R-9 for 6 years after discharge with Equifax and 7 with TransUnion.

Furthermore, sometimes, when debt is too significant or when your financial capacity is too limited, bankruptcy is the best, or even the only, way out. In such situations, if you delay your decision, you only prolong the agony and increase your creditors’ frustration. Those who have experienced it know what we are talking about. Once the bankruptcy is filed and that your only concern are your personal expenses, the disadvantages related to the credit report become secondary. In fact, as soon as one’s budget is balanced, that when one can start living again and that is when the healing begins. Sometimes, what seems like a drastic measure is what is needed to find the right and quickest path to financial health and peace of mind.

What if you choose to do nothing? Well, it’s often the worst decision. Not only do things rarely get resolved on their own, but your credit report and financial situation is likely to deteriorate even further. Taking action isn’t always easy, but you will glad you did once you’ve passed through this turbulent period.