If you want a true picture of your credit, you cannot just check your score and move on. Firstly, because you should want to understand exactly where the weaknesses are, and how to improve them. But also, simply because financial institutions look specifically at the contents of the credit, and not just your score (though they are of course correlated).
What to look for on your Credit Report?
While reviewing a Credit Report, a lot of the information could look abstract and very difficult to understand. It is quite common for consumers to either willfully, or by lack of knowledge, ignore many key details on the report. Lenders use codes to send information to the credit bureaus about how and when you make payments.
These codes have two parts:
a letter shows the type of credit you're using
a number shows how good your payment history is
You may see different codes on your credit report depending on how you make your payments for each account
Breaking down Letters on the Credit Report
The Letters Used for Credit
There are typically 4 types of credit and 4 letter codes to specify each one of them:
Revolving or Recurring Credit (R): In this case the creditor allows you an amount of money that you can use on an ongoing basis. As a consumer, you use an amount and after you pay that amount, you can use it again. Use-Pay-Use-Pay. It revolves. There is no term. A minimum payment would be required on the due date. A good example would be a credit card or a line of credit.
Instalment Credit (I): Here, you would be granted a certain amount for a fixed period of time - along with a predetermined payment that comes from a predetermined interest rate. Once the loan is payed off, you would need to apply again to have access to that same amount again. A good example would be getting car financing or a bad credit car loan.
Mortgage Loan (M): This is also defined as instalment credit in some cases. It refers to a mortgage that the creditor is granting for the purchase of a home. In this case, terms are defined differently. You have a total amortization period, and a number of terms within that. Essentially, if you have a 5 year term & 20 year amortization - your payment is calculated for the first 5 years and renegotiated for the next 5 year period.
Other or Open Status Credit (O): The money is borrowed when needed. An example could be telephone bills or utility bills, overdraft etc.
Breaking down the Numbers on the Credit Report
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 using one of the following debt management options:
a consolidation order
orderly payment of debts
consumer proposal
debt management program with a credit counselling agency
8
Repossession
9
Written off as a “bad debt”
Sent to collection agency
Bankruptcy
It is very important to understand that when a lender determines a late status, it is always in reference to your payment due date. In order for an account to be R2 or I2 the consumer must not have made a payment 31 days from the due date.
For example:
If you have a credit card account that you paid on time, it’ll be reported as “R1”
Should you have a line of credit, and you missed a payment by 45 days, it’ll be reported as “O2”
If you have credit card debt and you’re being contacted by a collection agency for payment, it’ll be reported as “R9”
The best rating is 1. Any number higher than 1 will likely hurt your credit score.
Financial & Factual information listed on your credit report
Your credit report may contain the following financial information:
non-sufficient funds payments, or bad cheques
chequing and savings accounts closed “for cause” due to money owing or fraud committed
credit you use, including credit cards, retail or store cards, lines of credit and loans
bankruptcy or a court decision against you that relates to credit
debts sent to collection agencies
inquiries from lenders and others who have requested your credit report in the past three years
registered items, such as a lien on a car that allows the lender to seize it if you don’t make payments
remarks, including consumer statements, fraud alerts and identity verification alerts
Your credit report contains factual information about your credit cards and loans, such as:
when you opened your account
how much you owe
Whether you made your payments on time
if you missed payments
Whether your debt has been transferred to a collection agency
if you went over your credit limit
personal information that’s available in public records, such as a bankruptcy
It also includes identifying information like your date of birth, employment, address & SIN number
By: Mateo Gjinali
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