Your Credit Rating


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Credit rating estimates credit worthiness

A credit rating estimates the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit agencies of a borrower’s overall credit history. A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit agencies at the request of the lender. Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. However, in recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit.

A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates, or the refusal of a loan by the creditor.

Credit Rating Systems

Some credit-reporting agencies report the lenders' rating of each of your credit history items on a scale of 1 to 9. A rating of "1" means you pay your bills within 30 days of the due date. A rating of "9" means that you never pay your bills at all or that you have made a consumer debt repayment proposal to the lender. A letter will also appear in front of the number: for example, I2, O2, R2. The letter stands for the type of the credit you are using.

  • "I" means you were given credit on an installment basis, such as for a car loan, where you borrow money once and repay it in fixed amounts, on a regular basis, for a specific period of time until the loan is paid off.
  • "O" means you have open credit such as a line of credit, where you borrow money, as needed, up to a certain limit and the total balance is due at the end of each period. This category may also include student loans, for which the money may not be owing until you are out of school.
  • "R" means you have "revolving" credit, where you make regular payments in varying amounts depending on the balance of your account, and can then borrow more money up to your credit limit. Credit cards are a good example of "revolving" credit.

The most common ratings are "R" ratings. These are known as North American Standard Account Ratings and are the most frequently used. The "R" indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The R ratings are a coding system that translates "on time", "one month late", "two months late", etc., into two-digit codes.

R0 Too new to rate; approved but not used;
R1 Pays (or paid) within 30 days of payment due date or not over one payment past due
R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due
R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
R5 Account is at least 120 days overdue, but is not yet rated "9"
R6 This rating does not exist.
R7 Making regular payments through a special arrangement to settle your debts
R8 Repossession (voluntary or involuntary return of merchandise)
R9 Bad debt; placed for collection; moved without giving a new address or bankruptcy.
Other rating indicators that might be found on a report are "I" for installment credit or "O" for open credit line.

To see examples of what credit reports look like and to get more information on credit scores, visit the Financial Consumer Agency of Canada's publication entitled Understanding Your Credit Report and Credit Score.

Here are Canada's major credit-reporting agencies:

Equifax Canada
Tel: 1-800-465-7166
Fax: 514-355-8502

TransUnion Canada
Tel: 1-866-525-0262 (except in Quebec)
Tel: 1-877-713-3393 (Quebec residents)