Understanding credit rating scores in Canada

Establishing a healthy payment history is the foundation of a good credit score, and having a good credit rating is closely connected.

Credit ratings rank your payment history from number one (excellent) and number nine (bad).

The fact is, the higher the number, the more detrimental to your credit score.

This information is recorded in credit reports maintained by the major credit bureaus, Equifax and TransUnion.

When a payment is late, there will be a negative impact on your credit rating. This damages your credit score and affects your ability to access credit in the future.

This article looks at each credit rating to understand how they are reported when you make payments.

Credit rating scale

Credit ratings use a series of letters and number codes to report account activity.

These codes are sent from the lender to the credit bureaus and applied to each credit account on your credit report.

Credit rating letters

Your credit rating starts with a letter that describes the type of credit being used.

I = Installment credit

Installment credit is where you borrow money for a set period of time and make fixed payments until the loan is paid.

Examples include mortgages and loans.

R = Revolving credit

Revolving credit allows you to regularly borrow money up to your credit limit if payments are made on time.

Examples include credit cards, home equity lines of credit (HELOC) and some other lines of credit.

O = Open credit

Open credit refers to accounts that you can borrow from up to a certain limit but must be paid every month—for example, a mobile phone account.

M = Mortgage loan

Mortgage information is also included in your credit report.

Credit rating numbers

Your credit rating ends with a number that refers to your payment activity for that specific credit account.

Installment credit Revolving credit Meaning
I0 R0 Your account is too new to rate or has not been used yet.
I1 R1 The best score possible and means you’ve paid on time (within 30 days).
I2 R2 You made a payment between 31 and 59 days late.
I3 R3 You made a payment between 60 and 89 days late.
I4 R4 You made a payment between 90 and 119 days late.
I5 R5 You made a payment more than 120 days late but not yet rated 9.
I6 R6 This code isn’t used.
I7 R7 Making regular payments through one of the following:
  • consolidation order
  • orderly payment of debts
  • consumer proposal
  • debt management program
  • credit counselling agency.
I8 R8 Repossession.
I9 R9 Your account has either been written off as a bad debt, sent to a collection agency, or you’ve filed for bankruptcy.

*Other letter codes on a credit report are “O” for open credit and “M” for mortgage loans.

Example credit rating scores for installment credit

For example, if you use installment credit such as a loan, making payments within 30 days of billing results in an I1 credit rating being reported to that account.

Alternatively, if you make a late payment and it’s been 31 days since billing, the creditor or lender will report an I2 credit rating instead.

Example credit rating scores for revolving credit

If you use revolving credit, such as a credit card, and you make payments within 30 days of receiving your statement, you’ll receive an R1 credit rating for that account.

But, if you don’t pay and it’s been more than 120 days since billing, an R5 credit rating will be reported, with the possibility of your account being passed to a collections agency.

If this happens, you’ll see an R9 applied to this account, the worst possible credit rating.

Conclusion

When a negative credit rating is reported to one of your accounts, it affects your credit score and makes it harder to access credit.

To stop this from happening, pay your bills on time, every time.

If you’ve already missed a payment, the good news is that you recover by taking steps to improve your credit score.

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