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Have you ever seen an actual raw credit report? Meaning, a credit report that has been produced directly from a credit reporting agency for the purposes of lending and not a credit report cosmetically changed for consumer consumption. If you have then you know each account has a numeric rating, 1 through 9, and each of those numbers has a specific meaning. If you want to better understand those numeric ratings and see what each means…read on…
The Back Story
Your credit score is based on the information in your credit report. And, each individual account or “trade line” on your credit report has its own individual rating. Each lender reports payment information to the credit bureaus and each account could receive a different rating.
If you are able to pay all of you obligations with the funds you have on a monthly basis, you would pay each of them in full and on time. If you have limited resources, you may decide to pay them based upon priority or necessity. In the past mortgages and auto loans were paid before credit card debt. During the great recession, mortgages seemed to move to last place for many people.
The creditor/lender updates the account monthly to the credit bureaus, which is usually with their accounts receivable information. This includes the amount owed, amount paid and how currently the account is being paid. The creditor reports the current status of the account or the account rating based on how current or late the account is.
Standard account ratings
There are standard codes set by the credit reporting industry, which the creditors use when they provide this information to the credit bureaus. The credit bureaus only report what is provided to them and do not determine the rating. Here is a breakdown of the ratings:
A new account which is “too new to rate” is rated 0.
An account that is paid on time and is the best rating is “pays as agreed” and rated 1.
An account 30 days late, which is considered 30 to 59 days past due, is rated 2.
An account 60 days late, which is 60 to 89 days past due, is rated 3.
An account 90 days late, which is 90 to 119 days past due, is rated 4
An account 120 days late, which is 120 to 149 days past due, is rated 5.
Regular payments agreed upon under a wage earner plan is rated 6.
Repossession is rated 8.
Bad Debt or a collection is rated 9.
The credit bureaus do not control or determine the credit ratings. They report information provided by the data contributors. The contributors follow the guidelines on the account ratings. You control how the account is rated based upon how you pay your bills.
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Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. You can follow John on Twitter here.
