The Difference Between Credit Rating and Credit Score


There are two different concepts when talking about credit that are equally important to learn about:

Credit report: What is included?

  • Your name, identification and personal information such as address and employment. This is where errors can commonly be made- I have had nightmares in credit counseling where the client’s file was mixed with another client’s file- watch especially closely if you have a more “common name”, like Smith or Jones.
  • Credit reports also show the “Trades” (mortgages, credit cards, loans, lines of credit) that you have. Elaboration on when they opened, the limits, the repayment details and if you have ever been late, how many times late. Some reports provide an R rating:
    • R1 – being the best rating (paid as agreed and up to date)
    • R2 – R6 Account is overdue- how long overdue will increase the exact rating
    • R7 – payments are being made through a third party program
    • R8 – repossession or foreclosure of collateral
    • R9 – Bad debt, account is in collections
  • or an I rating which is the same thing as an R rating only meaning installment debt
  • Will provide information on public records relating to your credit history: Bankruptcy, Orderly payment of debt, Credit counselling, Judgments, Seizures, garnishment of wages or secured loans.
  • Inquiries on your credit are also noted – these are important to check since you only want those companies inquiring on your credit if you have given permission for them to do so. Too many inquires lower your credit score (see below).

  • There are soft inquiries:
    • A soft inquiry typically occurs when you or a third party reviews your credit for non-lending purposes. This could occur when you review your own credit, a company offers you a new product or service, or a company where you have an existing account needs to verify your credit. According to TransUnion Canada, the following situations may also trigger soft credit inquiries:
      • Applying to rent a home
      • Applying for a job
      • Applying for insurance
  • There are hard inquiries:
    • A hard inquiry is typically recorded on your credit report whenever a lender reviews your credit when you apply for a credit card, loan, or mortgage. Before giving a company permission to review your credit, ask how the inquiry will be recorded.
    • Hard inquiries can negatively impact your credit score an they can remain on your report for three to six years. Applying for a lot of credit in a short time span can indicate to lenders that you are in financial trouble. Limit the number of hard inquiries by only applying for credit that you are serious about.

Credit score:

  • Your credit score is calculated using a formula called the FICO formula. It is generally a number between 300-8000. What drives the FICO formula:
    • Payment history- your ratings
    • Credit already used: stay under 30% of your available credit to achieve the highest credit score
    • Negative information such as public information- bankruptcies, collections or judgments.


  • Your credit score and credit report are valuable as they are used by lending institutions to approve or decline your application for credit. A good credit provides better negotiating room to:
    • obtain a lower rate
    • achieve a longer amortization
    • achieve satisfactory loan terms
    • build a positive relationship with your banking representative and institution.


Maintaining this aspect of your finances can be work but the effort is well worth it in the respect you will receive through the financial benefits of lower interest rates and stronger financial relationships.


Don’t underestimate the value of both your credit rating and credit score. Contact Wendy if you want to rebuild your credit or get more information at 

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