Published on December 3rd, 2009 | by Canadian Credit Expert1
Types of Bad Credit
Types of Bad Credit
Canadian credit regulations ensure that every type of loan is subject to repayment. This means that every type of loan can, if conditions are not met, can go into default status and be classified as bad credit.
Bad credit in Canada, just like consumer credit, is very complex. There are many types of credit and bad credit can be defined in more than one way. Any Bad Credit Canada is focused on the fundamentals of consumer credit and bad credit in Canada, therefore our definitions and descriptions of credit and credit problems are based on common and traditional scenarios.
Credit status can range from good, to poor to severe. There are different degrees of credit status and payment history and in order to rate and organize them, credit reporting was created. Here is a brief break down of the different credit statuses available in Canada. If you’ve ever seen your Canadian credit report then you might recognize some of them.
I0 / R1 – New Trade Line
A credit status of 0 represents a newly opened trade line or an insufficient credit history (too new). If a consumer in Canada opened a credit card in October, then their October and November credit file may report as R0. Until a full reporting cycle has passed (30 days), the status of that loan will remain at 0.
I1 / R1 – Up to Date
Any trade line reporting as I1 or R1 is considered up to date and indicates that the most recent payment was made within 1 month and there are no outstanding or late payments.
I2 / R2 – 1 Month Late
R2 or I2 status means that the required payment is at least 30 days past due. This indicates a late payment is the first sign of default.
I3 / R3 – 2 Months Late
This credit status means the debtors payment is at 2 months or at least 60 days past due or behind.
I4 / R4 – 3 Months Late
A status of R4 or I4 means the loan payment is 3 months past due and the payment is at least 90 days late.
I5 / R5 – 4 Months Late
If a credit bureau is reporting an R5 or an I5, the credit is severely past due and the payment owed is at least 120 days late.
I7 / R7 – Credit Counselling
This status means that the payments are being made by consolidation. A 7 status usually represents credit counselling or a consumer proposal
I8 / R8 – Repossession
If a loan is in 8 status it means the asset the loan was secured against has been repossessed. This status mostly appears as I8, indicating a car loan repossessed.
I9 / R9 – Write Off
After I5 or R5 status, the creditor will often write the loan off as bad debt. This status usually means the bad debt has been sold to a collection agency.
Other Types of Bad Credit
There are many other types of bad credit and credit status in Canada. While this article does not cover every type of bad credit in Canada, here is a brief description of the most common types of bad credit in Canada:
- Bankruptcy – Bankruptcy is a form of protection sought by debtors who can no longer afford to pay back their debts. See our Bankruptcy Definition and bankruptcy page for more on bankruptcy in Canada.
- Write Off Credit – Once a loan reaches R5 or I5 status it is considered severely past due. Most creditors will try several collection methods and even negotiation tactics to help bring the consumers loan up to date. If however they cannot accomplish this, the next step is often writing off the loan. By writing the loan off as bad debt, the creditor has determined the debt “uncollectable” and will either send it for specialized in house collection or sell the debt to a collection agency.
- Collections – When loan is written off by a creditor it goes into either R9 or I9 status and becomes bad debt. Often creditors sell that bad debt to professional collection agencies at a small loss. Once this happens the debt is usually listed on the debtors credit bureau with a balance under COLLECTIONS. If a credit bureau reports a collection, anyone reviewing the credit file will know that a loan or debt was not paid for long enough it was written off or sold as bad debt.
- Consumer Proposal – A consumer proposal is an alternative to bankruptcy in Canada. Consumer proposals often last longer than a bankruptcy and allow creditors to receive a larger settlement than they would in a bankruptcy. Read more in our Consumer Proposal Definition.
- Vehicle Repossession – A vehicle repossession happens after a car loan goes into default and the creditor has decided they cannot afford to continue collection processes or they’ve determined that the debtor will not bring the account up to date. Sending a car out for repo is a last resort for an auto lender and is considered very bad credit. A repo reports on a credit bureau as I8.
- Court Judgements -A court judgement is the result of legal action against a debtor or defendant. A judgement can result from a loan going into default, a criminal offense such as a car accident or traffic violation or a disagreement on a debt or service between individuals or businesses. On a credit bureau there is a section dedicated to COURT JUDGEMENTS. If a consumer has a jugement filed against them, it will report to their credit bureau with the name of the plaintiff and the dollar amount of the judgement.
Curious about what else you might find on a credit report in Canada? Read whats on a credit report.