Weighting of debts in a credit file
Lenders may use codes when sending information to credit reporting agencies about how and when a client makes payments. These codes may consist in a letter and a number. For example, an account may have R2 as its code. The letter corresponds to the type of credit used by the applicant, and the number to the way in which the payment is made.
Use of letters in codes and their meaning
I — Instalment credit
The applicant borrows money for a pre-determined period and repays it in fixed installments at regular intervals until the loan is repaid.
Example: car loan
O — Open credit
The applicant borrows money when needed, up to a certain limit.
Example: line of credit
R — Revolving credit
The applicant can borrow money up to his credit limit on an ongoing basis. Payments are made on a regular basis, in varying amounts depending on the account balance.
Example: credit card
M — Mortgage
Mortgage information may be included in the applicant’s credit file.
Example: mortgage loan
Use of numbers in codes
The codes also include numbers from 1 to 9. The best rating is 1, which means that the applicant pays his bills within 30 days of the billing date. A rating of 1 is very helpful in achieving a good credit score.
Any number higher than 1 will probably hurt the credit score. The worst score is 9, which usually means that the lender has written off the applicant’s account or transferred it to a collection agency.
A credit report with a rating of M4 could indicate a mortgage account 90 to 120 days in arrears. A rating of R0 would indicate a revolving account (such as a credit card account) that has just been opened and is too new to be classified. An I8 account would indicate a repossessed instalment account (voluntary or involuntary return of goods).
