It is a rating assigned to you by each of your creditors and recorded with the two credit bureaus (Equifax and TransUnion) based on your repayment habit for that debt (e.g., within 30 days, 60 days, 90 days). Each debt has its own credit rating.
A credit rating, often called a “credit score,” is a combination of a letter, indicating the type of debt, and a number, indicating if the repayment deadline imposed by the creditor is met. It is used by lenders to assess the risk associated with lending money or granting credit to an individual.
Do not confuse the “Credit Rating” with the “Score“. The rating is established for each creditor on an individual basis, while the score is a general average of your credit file, taking into account all your credit ratings but also other factors.
The credit rating provides information on:
- Payment history (did they pay their debts on time?).
- The total amount of debt they have at the time reported by the creditor.
- The duration of their credit history.
- The type of credit they use (credit cards, mortgages, personal loans, etc.).
The letters are “R” for revolving credit (e.g., credit card, line of credit), “I” for installment sales contract such as a car loan or “M” for a mortgage. The number (from 0 to 9) corresponds to the payment delay. 0 will be “unrated”, 1 will be for payments within 30 days, thus excellent, 2 from 30 to 60 days thus not as good, 3 from 60 to 90 days. 7 is for an agreement made with your creditor, such as a consumer proposal, 8 for the voluntary surrender of an asset to a secured creditor, such as a car, and 9 is for debts entrusted to a collection agency, if you left without leaving an address or if you filed for bankruptcy.
Based on the credit rating and score, lenders can decide whether or not to grant credit to an individual, and at what interest rate. A good credit record can allow an individual to get better interest rates on loans and credit cards.
It is therefore important for individuals to monitor their credit rating and take steps to improve it if necessary. This can include timely payment of bills, reducing the total amount of debt, and limiting new credit applications.