The credit rating is the report made by the credit reporting agencies for lenders to learn about the payments history and behavior of a given borrower or consumer in a given time. in the credit rating the numbers used to measure are from 0 to 9, where 0 is given to accounts that are too new to rate yet, or it hasn’t been used; a credit rating of 1 is given to borrowers that normally pay on time or earlier, and the amounts that are required or more; a credit rating of 9 is given to borrowers that do not pay their bills or have made consumer proposals in the past
A credit rating also reflects the type of credit used by the borrower or consumer, this letters are “I”, “O” and “R”:
“I” represents a type of installments payments established to repay the loan.
“O” represents an “open” type of payments established to repay the loan, like lines of credit for student loans when the amount borrowed depends on the amount needed and the balance is to be repaid at the end of a period of time.
“R” is for “revolving” credit where the amounts to be paid vary according to the amount borrowed and the amount borrowed can be up to the credit limit previously established, like in the credit cards.
“R” ratings used in North America
- 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.
- 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.
Credit rating is a very important factor that helps lenders in their decision to approve or decline a mortgage loan, as it helps determine the risk of repayment of a mortgage loan; good credit ratings combined with credit scores help the borrower qualify for lower mortgage rates .