Updated: April 2025  |  bremo.io financial guides

How a Consumer Proposal Affects Your Credit Score

A consumer proposal is a formal legal arrangement in Canada that allows you to negotiate with creditors to repay a portion of your unsecured debt over up to five years. Administered by a Licensed Insolvency Trustee (LIT), it is an alternative to bankruptcy that lets you keep your assets. But like bankruptcy, it has a significant impact on your credit score — though the damage is generally less severe and shorter-lasting than a bankruptcy.

What Is a Consumer Proposal?

Under the Bankruptcy and Insolvency Act (BIA), a consumer proposal allows individuals with less than $250,000 in unsecured debt (excluding mortgages) to make an offer to creditors to pay back a reduced amount. If creditors holding the majority of the debt accept, the proposal binds all unsecured creditors. You make monthly payments to the LIT, who distributes funds to creditors.

Once the proposal is fully paid and complete, your remaining unsecured debts included in the proposal are discharged.

How a Consumer Proposal Affects Your Credit Score

Filing a consumer proposal will typically drop your credit score significantly. The exact impact depends on where your score was before filing, but drops of 100 to 200 points are common. Most people who file proposals already have damaged credit from the period of financial stress leading up to the filing, so their scores may already be in the poor range.

Every account included in the consumer proposal is updated on your credit report to reflect this status. These accounts, plus the public record of the proposal itself, are what the bureaus report.

How Long a Consumer Proposal Stays on Your Credit Report

This is where a consumer proposal is significantly better than bankruptcy. The reporting timelines are:

• Equifax Canada: 3 years after the date the proposal is completed (fully paid)
• TransUnion Canada: 3 years after completion, or 6 years from the date the proposal was filed — whichever comes first

For comparison, a first bankruptcy stays on your report for 6 to 7 years after discharge. If your consumer proposal takes 4 years to complete, the mark falls off 3 years later — so 7 years total from filing. If you pay it off in 2 years, it falls off 3 years after that — so 5 years total. Paying your proposal off faster directly reduces how long it affects your credit.

The Credit Score During a Consumer Proposal

While you are actively paying off your consumer proposal, your credit score sits in the poor to fair range. However, you can and should begin rebuilding during this period. There is no rule preventing you from opening a secured credit card while in a proposal, and doing so means you will have 3 to 5 years of positive payment history already established by the time the proposal mark falls off your report.

Step-by-Step: Rebuilding During and After a Consumer Proposal

1. During the proposal: Open a secured credit card. Use it for small purchases. Pay it in full monthly.
2. During the proposal: Some credit unions offer credit builder loans to proposal payers — ask locally.
3. After completion: Apply for a basic unsecured credit card. Your proposal is still on file but your clean recent history is also visible.
4. After the mark falls off: Apply for better credit products. With 3 to 5+ years of post-proposal positive history, your score should be in the 650–720 range.

Consumer Proposal vs. Bankruptcy: Which Is Better for Credit?

From a pure credit impact perspective, a consumer proposal is generally the better choice:

• Consumer proposal falls off in 3 years post-completion; bankruptcy takes 6 to 7 years post-discharge
• Consumer proposal does not have the same social stigma as bankruptcy
• Consumer proposal allows you to keep assets like a car or home equity
• However, a proposal requires you to repay something; bankruptcy discharges debt entirely

The right choice depends on your specific debt load, asset situation, and income. A Licensed Insolvency Trustee can help you evaluate both options at no initial cost.

Getting a Mortgage After a Consumer Proposal

Getting a mortgage while a consumer proposal is on your credit report is possible but challenging. Many B-lenders and alternative mortgage lenders will work with applicants who have completed their proposal (even if it is still on the report) as long as they have rebuilt meaningful credit since. Major banks typically want the mark to have fallen off before approving a mortgage at prime rates.