In this guide, you’ll learn about credit ratings, the credit rating scale and how to improve yours.

What is a credit rating?

A credit rating is a letter and number code sent from the lender to the credit bureaus and applied to each credit account on your credit report. Credit ratings are used to score your repayment history.

The letter refers to the type of credit, while the number indicates whether your account activity is good or bad; the best rating is 1, and the worst is 9. Credit ratings can have a positive or negative impact on your credit score.

How Canadian credit ratings work

In Canada, your credit rating is based on how you repay your debt. Payment history is recorded for all types of credit, even smaller accounts such as utility bills.

Not making payments on time will result in a higher number code, which damages your credit score. This negative information appears on your credit report for six years from the date reported.

If you don’t make payments, the number code will rise further. Action by a debt collection agency will result in the worst number code, which can cause long-lasting damage to your credit score.

Positive activity will result in a lower number code on your credit rating, which increases your credit score.

Credit rating letter codes

A credit rating starts with a letter that refers to the type of credit being used: I, O, R or M:

Letter Meaning Example
I Installment credit
You borrow money for a specific period of time. You make regular payments in fixed amounts until you pay off the loan.
Car loan
O Open status credit
You may borrow money when you need to, up to a certain limit.
Mobile phone account
R Revolving or recurring credit
You may borrow money up to your credit limit on an ongoing basis. You make regular payments in varying amounts depending on the balance of your account.
Credit card
M Mortgage loan
Mortgage information may be included in your credit report.
Mortgage

Credit rating number codes

Credit ratings use a number between one and nine to report whether payments are being made on time.

Higher codes are used to describe accounts that weren’t paid or sent to a collection agency.

These ratings are also used to report any accounts included in debt solutions like a consumer proposal or bankruptcy.

Number Meaning
0
  • Too new to rate
  • Approved, but not yet used
1
  • Paid within 30 days of billing
  • Pays as agreed
2
  • Late payment: 31 to 59 days late
3
  • Late payment: 60 to 89 days late
4
  • Late payment: 90 to 119 days late
5
  • Late payment: more than 120 days late, but not yet rated “9.”
6
  • This code isn’t used
7
  • Making regular payments through a consolidation order, orderly payment of debts, consumer proposal, debt management program or a credit counselling agency
8
  • Repossession
9
  • Written off as a “bad debt.”
  • Sent to a collection agency
  • Bankruptcy

Source: Government of Canada: Understanding your credit report

How do late payments affect my credit rating?

Late payments and unpaid debts can damage your credit score and remain on your credit report for up to six years.

If you make payments on time, positive credit ratings are recorded on your credit report, which boosts your credit score.

As long as you pay your bill within 30 days of billing, a number one code is sent to the credit bureaus (e.g. R1 for a credit card). This is the best possible credit rating which can help improve your credit score.

If you make a payment after 30 days, your credit card issuer reports a negative credit rating to the credit bureaus. For example, if you make a payment between 31 and 59 days after billing, a number two code is sent to the credit bureaus. (e.g. I2 for a loan)

When a bill is over 120 days late, a number five code is reported (R5 for a credit card). At this stage, your account is in danger of being turned over to a debt collection agency. If this happens, your account will be assigned a number nine code, the worst possible rating.

Payment history on credit reports - credit ratings

Not paying debts on time results in a lower credit score, and it will take a period of consistent payments to rectify the damage.

When are late payments reported to credit bureaus?

Whether you’ve made a late payment for a credit card, loan or utility bill, you’ll discover that it will appear on your credit report soon after.

Typically, late payments are reported to the credit bureaus the following month.

What credit rating is good?

When you pay your bill within 30 days of billing, a number one code is sent to the credit bureaus — the best credit rating.

For example, when you pay your credit card bill on time, an R1 rating is recorded.

What credit rating is bad?

When you pay your bill after 30 days of billing, a number code between two and five is sent to the credit bureaus. Anything other than a number one code is a bad credit rating. If the debt remains unpaid long enough, this will increase to a number nine code, the worst possible rating.

For example, when you pay your credit card bill 60 to 89 days late, an R3 credit rating is recorded.

How does a consumer proposal affect my credit rating?

When you file a consumer proposal, each credit account included in your consumer proposal will be given a 7 rating to tell lenders that you are making regular payments through this agreement.

7 credit rating for credit accounts in a consumer proposal

See also: How does a consumer proposal affect my credit score?

How does bankruptcy affect my credit rating?

When you file for bankruptcy, each credit account affected will be given a 9 credit rating.

9 credit rating for credit accounts in a bankruptcy

See also: How will filing for bankruptcy affect my credit score?

Conclusion

It’s simple — paying your bills on time each month will result in a good credit rating, improving your credit score.

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