Understanding your credit Report

April 16, 2012

There’s more to a credit report than a score.  Credit scores range from 300 to 900. Good credit scores start in the low 700's ... but ...

 

You can have good income and a 700 credit score (which is about average) and still not qualify for a mortgage. The reason is that lenders generally look for one key factor: repayment history.

 

For example, that you have a 710 credit score but only one credit account. Worse yet, that one account is a credit card that you’ve had for only two months. Before that, you’ve had either no credit or bad credit (most likely, any bad credit would be from a few years ago, given your score).  In this case, your 710 score may not get the job done.

 

Lenders often want to see a minimum of 1-2 years of satisfactory payment history and at least two “trade lines” (loans or revolving credit accounts). A trade line can consist of a major credit card with a $1,500+ limit (a rough rule of thumb), a revolving credit line, a reported lease, or an instalment loan (like a vehicle or investment loan).

 

So, if you have no credit and you hope to apply for a mortgage, start building credit pronto. Get a credit card (even if it’s secured), a small instalment loan, a Futureshop card, whatever. And don’t ever make a late payment. Many lenders require squeaky clean repayment history for at least 1-2 years.

 


Credit Scores are important when applying for a rental, however, Interest Rates at the banks are also determined by your credit scores, with the best rates going to those with scores over 750.

 

Of course, there are lots of exceptions to the above--including cases where a co-signor or alternative credit can make up for traditional repayment history.

 

 

  

 


 

Credit Rating1  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.

"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.1

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.3

North American Standard Account Ratings

Code

Translation

Other rating indicators that might be found on a report are "I" for installment credit or "O" for open credit line.

Source: Equifax Canada

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.

Source: Equifax Canada

 

 

 

 

 

 


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Michael Kelly Sales Representative

Sutton Group Realty Systems Brokerage

Independently owned and operated

1528 Dundas Street West, Mississauga ON, L5C 1E4

Office: 905-896-3333

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