How will a Bankruptcy or a Consumer Proposal affect your credit rating?
If you are searching for answers to your debt problems, you may have come across or looked into bankruptcy or a consumer proposal. You might know a little about what each of those options can do for you, but how do they impact your future credit rating?
Your Credit Rating is more than just a number
Your credit rating is a very important piece of information that banks and other lending institutions use to know the likelihood that you will pay back the amount that you have borrowed. When you use credit, you are promising that you will pay back the specified amount of money within a certain time frame. The most important factor in your credit rating is your previous debt repayment. So if you have been very good at paying back your credit within the time limit laid out, then you have a better chance of having a good credit rating. If you have not done well at paying back your creditors and often make late payments then your chances of having a good credit rating go down.
What Do The Letters and Numbers Actually Mean?
The most common type of credit is called “Revolving credit”. This means that you have credit such as a credit card where you make regular payments that are based upon the balance that you owe. There is a limit of credit available and you can spend up to that limit while you are making at least the minimum payment on each statement. If this is the type of credit you have, you will see the letter “R” on your credit rating.
Lenders will rate of each of your credit history items on a scale of 1-9. The number “1” being that you pay your bills when they are due. Numbers 2-5 represent how many months your bill was passed due. For example an R4 would mean that your bill is or was 4 months overdue. An R7 rating means that you have done a consumer proposal, a credit counselling program or you are making payments through an agreed arrangement to pay off your debt. An R8 is given when repossession has taken place, such as a car repossessed and sold, to pay off the loan. An R9 means that you have declared bankruptcy or your debt has been put into collection. This is the worst score on your credit rating.
When you file for bankruptcy and get an R9 on your credit rating, that will stay on there for six years after the bankruptcy is discharged as long as this is your first bankruptcy. It can stay on for fourteen years if it is a second bankruptcy.
If you file a consumer proposal an R7 is placed on your credit rating for three years after your last payment has been made.
If you are looking into how you want to deal with your debt, it is important to take your credit rating into consideration. If you have really good credit, you may want to try every option available to avoid bankruptcy. If your credit is already suffering or you have a large amount of debt that you can’t get a grasp on, then a consumer proposal might be an option for you. If you need advice or would like to learn more, please call our 4 Pillars Red Deer office at 403-755-1757 and schedule a free one hour consultation with one of our consultants. We will take a look at your individual situation and provide you with options that are in your best interest.
