Credit ratings act as tools to help manage your finances. They give an overview of how responsible you are with your money and can impact your ability to get a loan approval with a favourable 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 can impact your ability to secure new credit and loans. 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.
What is R7 credit rating in Canada?
An R7 credit rating on your credit report indicates that you have entered a special repayment arrangement to manage your debts. It means that, instead of defaulting, you’ve taken a proactive step, using strategies such as a consumer proposal or a debt management plan to repay your creditors. This rating shows lenders that while you’ve had financial trouble, you are trying to settle your debts.
So, what does R7 mean on a credit report? It highlights a middle ground — a step above severe delinquency but not as favorable as consistent, on-time payments. Compared to an R1 credit rating, reflecting on-time payments and excellent credit behavior, an R7 is seen as less than ideal. However, it is still better than an R9 credit rating, which signals bankruptcy or that an account has been “charged off” by the creditor. While R7 can limit some opportunities, it does demonstrate a commitment to address financial challenges responsibly.
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.
How long does an R7 stay on credit reports?
An R7 rating can stay on your credit report for as long as six years past the start of your repayment plan. During that time, the rating can significantly impact your credit score. In turn, R7 affects your ability to secure loans and any new credit. Lenders may see an R7 as a warning that you face financial challenges and need assistance to manage your debts.
Now you may ask, “Is there any way to reduce the duration that the rating appears on my report?” Luckily, there is. For example, following your repayment plan can act as a positive influence. If you default on the repayment agreement, however, your credit rating may suffer additional damage, possibly moving to an R9 credit rating. An R9 signifies severe financial distress.
Even if your rating doesn’t fall further, the drawbacks of having an R7 rating are significant. An R7 rating can make accessing new loans, credit cards, or mortgages extremely difficult. Lenders see this rating as a sign of financial instability, which can make qualifying for favorable loan terms more difficult.
Steps to move from an R7 to a better credit rating
Improving your credit takes time, but it’s possible with consistent effort. To move toward a higher rating like R1, consider the following tips:
- Make all your payments on time to show lenders you are committed to managing your debts.
- Consider automatic payments or reminders that can help you stay on track and avoid missing due dates.
- Reduce your credit utilization with the goal of keeping your usage at 30% of your total available credit or below. A lower credit utilization reflects better financial management.
- Monitor your credit report, looking for errors and inaccuracies. If you find any, report them immediately to avoid hurting your credit score.
In time, your dedication can result in an improved rating – possibly even an R1 credit rating.
Debt relief options for R7 credit rating
If you’re dealing with an R7 rating on your credit report, debt relief options can help. And credit counseling services are an excellent place to start. They can aid in budget creation and credit negotiations as well as assist in setting up a debt management plan. Debt consolidation is another possibility, helping you to combine multiple debts into one. This option allows you to potentially lower your interest rate on debt, making payments more manageable.
Consumer proposals can help by letting you repay part of your debt over time (without the severe consequences of bankruptcy). See our guide for more resources on debt relief companies in Canada.
Conclusion
Dealing with an R7 credit rating can be challenging, but it doesn’t have to define your financial future – only your past. While an R7 rating shows that you’ve faced difficulties, it also indicates that you are taking steps to manage your debts. With effort, consistency, and access to debt relief options, you can move from R7 to better credit ratings – like an R1, which reflects strong financial management. Your financial path may have bumps, but with perseverance, you can navigate your way to smoother terrain.
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.
