How do you read a credit report, what does it mean and why does it matter?
Whether you’re applying for a loan, an apartment or a job, lenders, landlords and employers may view your credit report because it’s like your financial resume − It tells them your credit history, such as how much debt you have and when you pay your bills. That’s why it’s important to know how to get a credit report for free once a year from each of Canada’s two credit bureaus, TransUnion and Equifax.
Whatever your reasons for requesting a credit report − maybe you want to check it for accuracy (click here for more on disputing credit report errors) − it’s easier to understand once you know the type of information included and the meaning of the codes being used. Let’s crack the codes!
What information is in your credit report?
A credit report lists everything that’s happened in your life that has to do with credit, such as:
- Your name, age and address
- Your job and where you work
- What debts you have, including your credit cards, retail or store cards, lines of credit and loans
- Your repaying habits (pay late or on time, do you only make minimum payments)
- If you’ve ever passed an NSF (non-sufficient funds) cheque
- Bank accounts closed because you owed money/committed a fraud
- 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
- Liens (i.e. a creditor you owe money to has the right to keep an item of property belonging to you until your debt is paid)
What do those strange codes in your credit report mean?
This is the part that might confuse some people, but it’s just a matter of knowing the meaning of the letters and numbers that you see on your credit report. Here’s what they mean:
Letters indicate the type of credit you're using
I = Installment credit — Regular payments in fixed amounts, like a car loan.
O = Open status credit — Borrowing up to a limit, like with a mobile phone account.
R = Revolving or recurring credit — A regular credit card
M = Mortgage loan — A loan used to purchase a home
Numbers indicate when you make payments
0 = No rating because you haven’t used the credit yet
1 = Paid within 30 days of billing
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 debt management
8 = Repossession: For example, if you give back your car or it is taken back by the lender because you are behind in loan payments.
9 = Written off as a “bad debt”/Sent to collection agency/Bankruptcy
With a credit score, a high number is positive, but on a credit report, the highest number reflects badly on your record. You’re aiming for low numbers here, like in golf. So, if you have a regular credit card, and you receive a rating of R1 (which means you have a credit card, for instance, that is always paid within 30 days), that’s the best possible rating. It means you use your card, and then pay on time.