Area of Law: Credit, Debt and Bankruptcy
Answer # 0285
What is a credit rating?Region: Ontario Answer # 0285
Credit ratings are codes that lenders use to rate how and when you make payments. Credit ratings are contained in credit reports. A credit reports is a file kept by credit reporting agencies that contains information on a person’s credit history. Each separate credit account you have will have a credit rating.
Credit ratings are based on a scale from 1, which is the best rating and means you pay your bills within 30 days of the billing date, to 9, which is the poorest rating, which could mean you never pay your debts at all, you’ve been placed for collection, or you have filed for bankruptcy.
Type of credit
A letter will also appear before the number, indicating the type of credit you are using:
‘R’ refers to revolving credit, such as a credit card, where you make regular payments in varying amounts, and you can borrow up-to a credit limit.
‘O’ refers to open credit, such as a line of credit, where you borrow up-to a certain limit, and the total balance is due at the end of each period.
‘I’ refers to installment credit, such as a car loan, where you borrow money once and repay it on a regular basis, in fixed amounts and for a specific period of time, until the loan is paid off.
North American Standard Account Ratings: “R” Ratings
The most common and most frequently used ratings are “R” ratings for revolving credit items. Known as the North American Standard Account Ratings, the Federal Office of Consumer Affairs (OCA) lists them as follows:
- 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.
- 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 debts.
- R8: Repossession (voluntary or involuntary return of merchandise).
- R9: Bad debt; placed for collection; moved without giving a new address, or bankruptcy.
More information on credit reports and credit ratings can be found from the Financial Consumer Agency of Canada. Visit canada.ca.
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