Question: If I file a consumer proposal what is the quickest way to rebuild my credit? Should I save up for a secured credit card or just pay off the proposal as fast as possible first? Also, during a consumer proposal, is it possible to get a loan for a car? Thank you!
Borrowing and A Consumer Proposal
Those are good questions! There are effects of filing bankruptcy or a consumer proposal, and one of those is a note on your credit report. However both alternatives are an opportunity to begin the process towards repairing your credit.
Your ability to borrow is based on your credit score, but also your income, other debts, and past history. Disclosure of your consumer proposal will remain on your credit report for three years after your proposal is completed, so that will make it more difficult to borrow in the future. The quicker you pay off your proposal, the sooner the note will be purged from your credit report, so paying off your proposal as fast as possible is an excellent start to rebuilding your credit.
A secured credit card will help improve your credit, but only marginally. A typical secured credit card might be for $1,000, which will not have a significant impact on your credit score.
It is possible to get a car loan while in a proposal, but you will require a significant down payment, and you may be charged a high interest rate, unless you have a very good income, or you have a good co-signer.
If your goal is to rebuild your credit long term, the best strategy would be to:
- pay all of your bills on time (like utilities, etc.) while you are in your proposal and after;
- pay off your proposal as quickly as possible;
- save money (because with a large down payment it is possible to finance a car at decent interest rates, even after filing a proposal).
As your credit improves you can begin to borrow larger amounts, but remember, it was debt that caused you to file a consumer proposal in the first place, so don’t be in a hurry to take on any more debt than is necessary.