Credit ratings act as tools to help manage your finances. They give an idea of how responsible you are with money and can affect your chances of getting a loan with a good interest rate. One of these ratings is the R7 credit rating – it shows that a borrower has entered into a special repayment arrangement, such as a debt management plan or a consumer proposal. While it might indicate some financial difficulties it also demonstrates an effort to address debt responsibly.
If you have an R7 rating on your credit report, it might be harder for you to get new loans and credit. But there are debt relief options available to help you. In this article, we’ll explore what an R7 rating means, how it compares to other ratings like R9 and the steps you can take to recover.
Seeing an unfamiliar code on your credit report can be confusing. One of the more mystifying codes is the R7 rating. If you’ve noticed this on your own report, you probably have some questions. What exactly does it mean and why is it there?
In this article, we’ll demystify R7 codes on credit reports. You will find out what it means, how long it will last, and most importantly, what you can do about it.
What is an R7 Code?
If you see an R7 code on your credit report, it means you’ve made a plan to pay off your debts. It is the job of a Licensed Insolvency Trustee (LIT) to handle this legal process.
You can agree to pay back only a part of your debts over a set amount of time, usually 5 years, with a consumer proposal. Creditors may agree to forgive the remaining amount owed.
The R7 code lets lenders and creditors know that you have a consumer proposal in place to settle your debts. It also shows that you are committed to being responsible with your money.
How Does the R7 Code Affect My Credit Score?
The R7 will likely cause your credit score to drop, but only temporarily. Expect your score to decrease by 30-50 points initially.
However, focus on the long-term upside. The consumer proposal allows you to decisively tackle your debt. Once completed, your credit can recover and you’ll enjoy greater financial stability.
How Long Does the R7 Code Stay on Your Credit Report?
The R7 code remains on your credit report for:
- 3 years after completing the consumer proposal, or
- 6 years after filing,
whichever comes first.
For example:
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If you finish repaying your consumer proposal within 5 years, the R7 code stays for 1 more year.
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If you complete repayment within 2 years, it stays for 5 more years.
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With a lump sum proposal, it remains for about 3 years.
The maximum time is 6 years from your filing date. Creditors like TransUnion and Equifax recently shortened the R7 retention period.
How to Handle the R7 Code on Your Credit Report
Having an R7 code can seem daunting initially. But remember, it’s temporary and paves the way for financial freedom. Here are some tips:
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Focus on the big picture – resolving your debt is more important than your credit score right now. R7 shows you’re acting responsibly.
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Build positive habits – make on-time payments and consider a secured credit card to demonstrate good credit behavior.
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Monitor your credit report – check regularly that your R7 code is being reported accurately. Dispute any errors with the credit bureaus.
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Avoid new debt – new credit will likely come with very high interest rates during the R7 period. If possible, wait until the code drops off.
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Pay off proposal early – this shortens the R7 retention period. Make extra payments when possible.
With the proper perspective and diligence, the R7 code can be a stepping stone to financial freedom rather than a roadblock. Take control of your situation and let the R7 motivate you towards stability.
Frequently Asked Questions
How did I get an R7 code in the first place?
An R7 code appears after you’ve filed a consumer proposal to settle your debts. This is a legal process done through a Licensed Insolvency Trustee. Filing a consumer proposal triggers the R7 code.
Can I remove the R7 code from my credit report?
Unfortunately, you cannot remove the R7 code until the standard retention period has passed. This is typically 3 years after completion or 6 years from filing.
Your best recourse is focusing on timely payments, keeping accounts in good standing, and avoiding further debt. This will help you rebuild credit for when the R7 code drops off.
Will the R7 code prevent me from getting a mortgage?
The R7 makes it harder to get a mortgage, but specialized lenders exist to serve borrowers with unique credit histories. With a sizable down payment and secured credit card history, you may increase approval odds.
How is an R7 code different from an R9 code?
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R9 means you’ve declared bankruptcy. This is worse than R7.
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R7 indicates you have an active consumer proposal for debt repayment. It’s a step towards financial responsibility.
Does R7 affect all my credit accounts?
Yes, the R7 code appears on each of your credit accounts while you have an active consumer proposal. The rating is added to revolving and installment accounts.
Is an R7 rating worse than bad credit?
The R7 code will negatively impact your credit score in the short term. However, having bad credit because of late/missed payments is worse.
R7 means you’re facing your debts head on. Rebuilding credit after R7 is much faster than if you have a history of bad credit management.
Summing it Up
Seeing an R7 on your credit report can be worrying but knowledge dispels confusion. Now you know it relates to an active consumer proposal and is only temporary.
Focus on completing your consumer proposal responsibly. This will pave the way for rebuilt credit and financial stability when the R7 code eventually drops off per the standard retention policy. With the right perspective, it’s a stepping stone, not a roadblock.
R ratings on credit reports
The R credit rating system in Canada evaluates a borrower’s creditworthiness based on their payment history.
- R0: New or unused accounts receive an R0 rating as they lack payment history.
- R1: This is the top rating in Canada. It indicates on-time payments which are made within 30 days of billing.
- R2: Payments are 31 to 59 days overdue.
- R3: Payments are 60 to 89 days past due.
- R4: Payments are overdue by 90 to 119 days. An R4 credit rating means you are missing three or more payments.
- R5: An R5 rating is for accounts with severe delinquency where the payments are overdue by 120+ days. If you have an R5, lenders may be considering collections or legal action.
- R6: This rating is rarely used.
- R7: Indicates an account under a special repayment arrangement, often with lower payment amounts. Accounts with an R7 credit rating include those under a consumer proposal or debt management plan (DMP).
- R8: This rating represents insolvency – potentially with the repossession of assets.
- R9: An account with an R9 rating indicates a declaration of bankruptcy.
R7 vs. R9 credit rating
The R7 and R9 credit ratings represent two different levels of financial distress. An R7 rating means the borrower has entered a repayment arrangement, like a consumer proposal or debt management plan, to settle their debts.
In contrast, an R9 credit rating indicates a much more severe financial issue. It means that the account has been “charged off” as a loss by the creditor or that the borrower has declared bankruptcy. This is the worst credit rating to have – it signals an inability to repay debt.
Both R7 and R9 ratings negatively affect your creditworthiness, but an R7 shows some proactive effort to resolve debt. R9, on the other hand, suggests an inability to manage financial obligations. The R7 rating is slightly less damaging.