When you borrow money, use your credit card, or pay bills, information about your financial transactions is sent to a credit reporting agency. The agency uses this information to come up with your credit rating and your credit score. It tracks how much money you borrow, and how quickly you pay it back.
How credit ratings work
Your credit rating contains a number and a letter.
The number – between 0 and 9 – shows how fast you pay your bills. A “1” means you pay your bills quickly, while a “9” means you never pay them.
The letter tells lenders the type of credit you use:
- “R” stands for revolving, and is the most common. If you have a credit card, you will have an “R” credit rating.
- “I” stands for instalment. This means you borrow money once, then make regular payments. Leasing a car will give you an “I” rating.
- “O” means open. This means you can borrow and repay money at any time, as long as you make the minimum monthly payment. A line of credit will give you an “O” rating.
For example, if you pay your credit card bills in full every month, you’ll rate an “R1.” That’s the best credit rating you can have. If you don’t pay your credit card bill, or you declare bankruptcy, you’ll be at the bottom of the chart with an “R9.”
Learn your credit rating
There are two major credit reporting agencies in Canada – Equifax and TransUnion. To learn your credit rating, order a copy of your credit report from one or both of these agencies. It’s free, and these agencies don’t share information, so it’s a good idea to check both. You can choose to receive your credit report by mail or online.
Your report also contains information on:
- your loans, credit cards and other forms of debt,
- personal data like your name, social insurance number and date of birth,
- bank accounts and any NSF (bounced) cheques,
- your current and past employers, and
- a record of any debts you’ve had referred to a collection agency.
You must order a separate report to learn your
credit score. This report is also free.