Key Takeaway
You can get a credit card while in a consumer proposal but you may only first qualify for a secured credit card or can get a prepaid credit card.
Once you File a Consumer Proposal
When you file a consumer proposal you will need to cut up all your current credit cards. While you may be able to manage purchases with your debit card and cash, it may also be useful to have a credit card, especially if you rely on it for everyday expenses or online transactions.
If you're considering filing a consumer proposal to get debt relief, you may be wondering if you'll be able to get a credit card during this process. The answer is yes, you can get a credit card while in a consumer proposal. In this post, we'll explain the different types of credit cards you can obtain while in a consumer proposal and how to use them to rebuild your credit.
Credit Card Options
Secured Credit Card
A secured credit card is one option for getting a credit card with a consumer proposal. A secured credit card is like a regular credit card, but it is backed by a cash deposit made by you to the lender. This deposit acts as collateral and helps to rebuild your credit by reporting your transactions to credit agencies. The lender will still charge you for interest on any balances outstanding at the end of the month. However, the lender is protected by your deposit if you are unable to pay the balance on the credit card.
You can apply for a secured credit card with lenders who offer this option such as Capital One, Home Trust and Neo Financial. These companies offer a variety of secured credit cards with different interest rates, fees, and rewards. As with any credit card, it's important to pay them on time and to pay more than the minimum required to avoid further damaging your credit.
Having a secured credit card can be an important first step toward rebuilding your credit. While in a consumer proposal, you want to have activity on your credit history to improve your credit score. If you have no active activity on your credit history, then your credit score will stay the same or may even decline.
Prepaid Credit Card
A prepaid credit card is different than a secured credit card and is offered by VISA and Mastercard which you can buy at retail stores, or you can get a financial institution. The typical prepaid credit card is like a gift card that can be purchased at a retail store such as a grocery store or gas station for the amount of dollars you pay for the card. Also, some banks and credit unions offer prepaid credit cards which are reloadable and will have your name on them. These cards may also have rewards offered on them for purchases you make.
Prepaid credit cards are really not much different than debit cards but may be accepted at more stores as they can be used wherever credit cards are accepted. This can be useful if you need to purchase something where a credit card is required, but don’t have one. However, a prepaid card is not considered credit for purposes of credit reporting, so it will not improve your credit score and only has a certain limit of funds before it can no longer be used or needs to be reloaded. This type of credit card should be used as a convenience rather than using to rebuild your credit score.
Unsecured Credit Card
As you rebuild your credit while in a consumer proposal, you could apply for a regular unsecured credit card. These are your typical credit cards where you don’t provide any deposits upfront with the lender and they are likely to offer rewards for dollars spent on the card.
These may be more difficult to qualify since you aren’t providing any deposits to the lender. Also, the lender may be concerned if you can make the payments since you would have recently filed a consumer proposal. However, you may still qualify for one with lower limits than you had prior to filing the consumer proposal.
Using an unsecured credit card can further help in rebuilding your credit as the balance and payment histories are recorded monthly on your credit record. Though be sure any purchases you make on your credit card can be repaid in full or you could find yourself in problems with your debt and incurring high-interest rates.
Rebuild Credit
Obtaining a secured or unsecured credit card can be a great first step to rebuilding your credit during a consumer proposal. It is important to have monthly activity on your credit record such as purchases, or it will be difficult to improve your credit score. Use a credit card for items everyday items such as groceries and gas then pay off the balance the following month before the payment is due.
While you rebuild your credit you should also obtain a credit report to ensure that the information is accurate. All your debts should be listed there but if there are any debts that you don’t know about or find any errors, you should contact Equifax and Transunion immediately. Having errors on your credit report will further hurt your credit score. Also, someone could steal your identity and is using your credit and not make payments. If you don’t monitor your credit history, then you won’t know. That is why we recommend taking a proactive approach to your credit.
Conclusion
In summary, getting a secured credit card while being in a consumer proposal can be a great way to start rebuilding your credit. Use it towards items you will purchase anyway like groceries then make sure to pay off the full balance the following month on time. Your credit score could then improve while you pay off your consumer proposal. Later, you may then qualify for an unsecured credit card with a higher limit.
Have more questions about keeping a credit card with a consumer proposal or considering filing a consumer proposal? Contact Litvack Group to get relief for your financial stress. We are available by phone, video or in person to help discuss your financial situation and find the best solution.