Credit ratings play a fundamental role in personal finance. Why? Because they are an indicator of our creditworthiness. These ratings influence loan approvals and affect everything from interest rates to financial opportunities. Among the various possibilities, an R4 credit rating indicates borrowers are experiencing substantial payment delays of 90 to 119 days.
This article will review the R4 rating in detail answering the question ‘How does R4 rating impact my credit score?’ I will also introduce you to various debt relief options.
What is R4 credit rating in Canada?
A R4 credit rating on credit reports suggests that borrowers are making delayed payments to their accounts. In the case of an R4, these payments are between 90 and 119 days late. Not ideal, I know!
An R4 rating on credit reports signifies serious delays in fulfilling financial obligations. It suggests that the borrower may struggle to manage their debt. In this case, it raises concerns about their overall financial stability.
If you are now wondering, “How does an R4 affect my credit score? Or does it even matter?” let me tell you that it does. Any pattern of delayed payments acts as a warning to both current and potential lenders. This has consequences. It can translate into issues securing new loans or credit products – especially those with lower interest rates.
R ratings on credit reports
The R rating system in Canada examines historical payments to assess a borrower’s creditworthiness. It then ranks the account accordingly.
- R0: Accounts with an R0 rating have no payment history. This is because they are new or unused.
- R1: An R1 is Canada’s best credit rating. The R1 credit rating suggests payments are made within 30 days of billing.
- R2: Payments on credit accounts with an R2 rating are made 31 – 59 days after billing.
- R3: Payments are 60 – 89 days overdue on accounts with an R3 rating.
- R4: Overdue payments by 90 – 119 days. An R4 rating shows three or more missing payments.
- R5: Payments are overdue by 120+ days for an R5 rating.
- R6: An R6 rating is not used often.
- R7: Accounts with an R7 rating have a special repayment arrangement, often ones with reduced payments. This may include consumer proposals. Or even a debt management plan (DMP).
- R8: An R8 rating suggests an account is insolvent, possibly with repossessed assets.
- R9: An R9 credit rating represents a bankruptcy or “charged-off” account.
How long does an R4 stay on credit reports?
Credit ratings can last on your report for six years. That’s right – up to six years after your last payment that is. The timeframe is also impacted if the account becomes inactive.
If you have an R4 rating, or even if you don’t, I recommend keeping an eye on your credit report. This helps to ensure the report correctly reflects the account status.
Strategies for improving your credit score from R4 to R1
Improving your credit score from an R4 to a better designation is achievable with consistent effort.
- Timely payments: Rebuild your credit by making on-time payments each and EVERY month.
- Build a positive credit history: To help establish or improve your score, consider using a credit card or another credit account. Be sure to make payments on time though.
- Reduce credit utilization: Aim to keep your credit utilization ratio below 30%. A lower ratio can positively impact your score.
- Review your credit report: Identify and dispute any discrepancies.
- Limit new credit applications: Every new application can temporarily lower your credit score, so monitoring how many you make is important. I recommend managing your existing credit first before applying for new accounts.
Debt relief options
Dealing with financial issues stemming from an R4 credit rating? If so, there are various debt management solutions available to assist you. For example, credit counseling services like Consolidated Credit can provide personalized guidance. They can help you develop a budget or negotiate with creditors. These services can even tailor a repayment plan to your specific situation. Check out our article on the 14 Best Debt Consolidation and Relief Program Companies in Canada.
Another strategy is debt consolidation which combines multiple debts into a single loan. The new loan could potentially have a lower interest rate, making payments more manageable. Additionally, consumer proposals can offer relief by allowing you to repay a portion of your debt over a set period. It protects you from severe consequences like bankruptcy. Need help deciding between debt consolidation and consumer proposals? See our guide here.
Conclusion
An R4 rating means that you make payments with significant delays which can negatively impact your credit score. And, with a lower score, you may run into challenges obtaining loans – or even favourable borrowing rates.
As you journey from an R4 rating towards better credit, don’t hesitate to seek support from reputable credit counseling agencies that can provide valuable guidance. With determination and the right resources, you can navigate your way to a healthier credit profile and financial stability.
Lauren has over 13 years of experience in wealth management and financial planning. She is a CFA charterholder and holds a Bachelor's degree in Finance. Lauren has worked with several asset management firms, offering wealth advisory and portfolio management services to high-net-worth clients.
