We are often asked how credit counselling, or a debt management plan, impact credit scores. If you are having financial difficulties, chances are you already have some negative marks on your credit history. If you are late 5 months with a payment, you will probably be coded as an R6. Negative information about your payment history remains on your account for 6 years.
Your initial consultation with a credit counsellor or bankruptcy trustee has no impact on your credit report. They are not required to report that you are seeking debt help. There is no harm in talking to a debt professional about your situation and asking for advice on how you can deal with your debt problems.
Debt Management Plans and your Credit Score
If you decide to file a formal debt management program, Equifax reports that both a debt management plan and a consumer proposal are reported exactly the same: they remain on your credit report for three years after the proposal or debt management plan is completed. Both are listed as an R7 on your credit report.
Under credit counselling, each credit card or debt that is included in your debt management plan will be marked as being part of a scheduled repayment plan. A consumer proposal is reported as a form procedure to repay your debts.
Both a consumer proposal and credit counselling report a lower negative score than a bankruptcy. In a bankruptcy you receive an R9 credit rating.
If you are behind on your monthly payments, you already have poor credit. The addition of an R7 as a result of a consumer proposal or debt management plan, in comparison to several R6 designations is not significant. In fact, filing a consumer proposal or a debt management plan and dealing with your debt can put you on the road to improving your overall credit score sooner than ignoring the situation.
If you are struggling with too much debt and are behind on your payments, you already have poor credit. Take the first step in dealing with your debts. Contact an debt advisor today.
Credit Score Comparison
|Debt Event||Credit Score|
|Late Payment||R6. Remains on your report for 6 years.|
|Credit Counselling & Debt Management Plan||R7. Remains on your report 2-3 years after completion of the program.|
|Consumer Proposal||R7. Remains on your report 3 years after completion of the program.|
|Bankruptcy||R9. Remains on your report for 6-7 years.|