Poor credit ratings and credit scores can be real financial obstacles. They make it difficult to get approved for loans. They can saddle you with higher interest rates. They can push major opportunities out of reach.
But the good news is that you have the ability to improve your credit score. Find out how you can recover from something as big as an unresolved R9 on your report and rebuild your credit over time. It’s possible!
What Is an R9 Credit Rating?
First things first, what is a credit rating? It’s a code used by creditors to assess someone’s ability to cope with financial credit. Creditors send these codes to credit bureaus like TransUnion and Equifax. Credit bureaus add the ratings onto credit reports and use them to calculate credit scores. All of these factors help banks, credit unions and other authorities know whether someone is financially reliable or a lending risk.
A credit rating is made up of two parts: a letter and a number. The letter symbolizes what type of credit is being used. The number symbolizes how well you commit to the repayments for that credit.
These are the credit rating letters:
- “I” for Installment Credit
- “O” for Open Status Credit
- “R” for Revolving/Recurring Credit
- “M” for Mortgage Loan
The credit rating numbers:
- “0” means it’s too new to rate
- “1” means that it was paid within 30 days or paid as agreed
- “2” means that it was paid 31-59 days late
- “3” means that it was paid 60-89 days late
- “4” means that it was paid 90-119 days late
- “5” means that it was paid more than 120 days late
- “6” (this code is not used)
- “7” means that you are making regular payments through a debt management option
- “8” means repossession
- “9” means bad debts, debts sent to a collection agency or bankruptcy
As you can see from these lists, R stands for recurring/revolving credit. The number 9 stands for bad debts, debts sent to a collection agency or bankruptcy. Together, it means that someone has serious outstanding debts for a recurring/revolving credit account. There is no rating worse than an R9. Essentially, it’s the worst-case scenario.
An unresolved R9 credit rating will lower your credit score and make it difficult for you to apply for more credit in the future. Lenders will take a look at the rating and immediately label you as a high-risk client. You will have trouble accessing a lot of financial opportunities until you officially resolve this rating.
If you have any more questions, you should click here to learn everything you need to know about credit ratings and credit reports. It could help you navigate your credit problems and improve your numbers.
How Can You Rebuild Your Credit?
Your credit situation doesn’t have to be rough forever. You have the power to fix it. If you’re not sure how, here is a list of actions that you can take to bring up your rating and score.
Resolve the R9
If you have an unresolved R9, you should take steps to address it. So, if you’ve managed to change your home address and personal information without informing your creditors, you need to do that right away. A simple update could change your report.
If the R9 is related to unpaid debts, you will want to tackle those as soon as possible. Make a commitment to repay your creditors. If your debts are overwhelming and you don’t think you can manage the repayments, you should contact a licensed insolvency trustee.
A licensed insolvency trustee will assess your situation and see what debt relief options are available to you. They can recommend credit counselling, a consumer proposal or a division 1 proposal as your next best step. Click here to learn about consumer proposals and credit reports to see how the common debt relief strategy affects your credit.
If your R9 is related to bankruptcy, then you’ll have to hold tight. Your credit won’t improve until you’ve gone through the entire process and received an official discharge.
Even after the discharge, your bankruptcy will still affect your credit report. It typically spends six to seven years on the report after the discharge before being wiped from your credit history. If this is your second bankruptcy, it will sit on the report for fourteen years. However, you can raise your ratings and score through the following methods:
Pay Bills On-Time
One of the easiest ways to improve your credit is to stop making payments late. Late and missed payments hurt your credit rating and lower your score. If you’re having a hard time remembering to pay your bills, there are lots of ways to work around this:
- You could use calendar apps on your phone or computer to remind you when deadlines are coming up. Or write down the dates in a paper calendar, planner or notebook.
- You could use bill monitoring apps to track all of your payment dates and send you notifications any time the deadline approaches.
- You could automate bill payments to make sure that your bills get taken care of, whether you remember the deadline or not. This is ideal for recurring, fixed payments — this means that the amount doesn’t change from month to month. Automating payments for inconsistent bills is riskier.
Take Care of Missed Payments
If you have a history of missed payments, you should work hard to catch up so that you’re up to date. Leaving this unaddressed will negatively affect your credit report.
Pay More Than the Minimum
Paying the minimum every single month is not a good long-term plan. The minimum allows you to make an official payment without getting charged late fees or any other penalties. But it doesn’t do much to shrink your debts — especially when you factor in high interest rates. Giving more will help you finish the loan repayment much faster, and it will keep your debt amount from getting out of hand.
If you can’t afford more than the minimum by the deadline, you can do the following:
- When you have more funds available, make another payment. Every little bit helps.
- When you have more funds available, set it aside so that you do more than the minimum next month.
- Reassess your budget. You may be able to cut costs so that you can put more money towards your repayments.
Don’t Apply for More Credit
Making numerous requests for credit is often interpreted by lenders as a sign of poor money management and risky financial behaviour. Your credit rating could still take a big hit, even if the lenders reject your requests. Put your plans for more credit on pause for a little while. Patience will be rewarding.
Check for Errors
Sometimes, there’s a mistake on your credit report. It could be a record that you missed a payment when you know for a fact that you made it in-full and on-time. It could list an account that you had closed. It could even have the wrong address. When you have the time, look through your report to see if all of the information is correct.
Errors can make your credit score/rating worse than they should be. Fixing that error could give you the boost that you’re looking for. Click here to see how the federal government recommends how to find errors on your credit report and contact credit bureaus to make the corrections.
It’s always important to double-check your credit report for any strange mistakes because it’s an easy way to figure out if you’re a victim of identity theft or financial fraud. The Canadian Anti-Fraud Centre received approximately 29,000 complaints of identity fraud in 2017 — the total losses from these crimes were valued at almost $12 million.
If you notice that your report lists accounts that you don’t remember opening, debts that you don’t remember making or that your overall score is suspiciously low, this may be the case. Contact the credit bureau, your creditors and the local authorities as soon as possible.
Avoid Using Credit to Pay Off Other Credit
It will be tempting to use credit to repay credit when you don’t have enough in your budget to make repayments. But, using credit to tackle other credit can be very risky. It’s a slippery slope that can quickly land you in more financial trouble than you had when you started.
People often turn to debt consolidation loans to help them deal with outstanding debts. One of the main issues with it is that this type of loan cannot be included in a consumer proposal. So, if your financial situation takes a rough turn and you need debt relief, your only option to cover the costs would be to file for personal bankruptcy. Click here to read more about debt consolidation loans and the consequences that can come with them.
Use Credit Responsibly
Irresponsible credit use tends to land people into serious debt — and this leads to a poor credit rating/score. If you really want to improve those numbers, you’re going to have to change how you use your available credit.
If you put everything on your credit card, your balance is going to rise rapidly. It will be a challenge for you to pare down this balance by the time your next bill due. As you make more transactions on your card and allow interest to accrue, the total debt will be harder and harder to handle. If you’re not careful, you could push past your card’s limits and max it out. Then you will have a large debt load to repay with no available credit to fall back on. It’s not an easy situation to get out of.
To be more responsible with your credit card, you should follow this simple rule of thumb from Chartered Professional Accountants Canada (CPA): keep your credit utilization below 35% as best as you can. Apply this rule to your credit cards, lines of credit, car loans and more. Maintaining a moderate balance will prevent you from extending your limits and going into serious debt. It will also prove to lenders that you’re responsible.
If you’re having trouble getting into better credit habits, you should think about signing up for credit counselling services. These sessions can teach you everything from how to use credit properly to how to make a savvy budget. The purpose of credit counselling is that you can learn these crucial lessons in a short amount of time and then use them for the rest of your life. Counsellors give you the tools to be financially stable.
Click here to see how you can contact credit counsellors across Ontario so that you can start learning these tools for yourself.
Manage Your Debts
Debt can sabotage your goal of getting a better credit score/rating. If you have a lot of debt weighing you down, you should talk to a licensed insolvency trustee. They will let you know whether budgeting and credit counselling services can help you manage your debts or whether you need to take up a more intensive strategy. They could recommend filing for a consumer proposal, a division one proposal or personal bankruptcy.
The smartest thing that you should do is tackle the problem right away. Ignoring your debts will only make them grow — not to mention, it will encourage your creditors to turn to aggressive collection tactics. It’s time to rip off the bandage and talk to a professional about your debts.
David Sklar & Associates:
Residents of the Greater Toronto Area have had their lives turned upside-down by the pandemic of COVID-19. Here at David Sklar & Associates, we understand that many residents have been thrown into financial instability because of this health crisis and are concerned about what to do next. If you need financial help, we are still here for you. We offer over-the-phone consultations and electronic document signing so that you can access our services from the safety of your home. We want to encourage our clients to prioritize their health as best as they can during these uncertain times.
An R9 on your credit report can be a serious problem. But the good news is that it’s one that you can resolve. When you take these recommended steps, you can revamp your personal finances and change your credit report for the better.