Credit Terms and meanings- Canada

Follow up to my post on Teaching kids about Credit and point #3.

We should educate children on terms of credit. What does APR mean? How is APR calculated? What is R1 – R9?. What is I1- I9? What is a billing cycle? When does interest get calculated?

APR stands for annual percentage rate. This is a cost of how much borrowing will cost a person, expressed as an annual(yearly) percentage. Example: 19.99% APR is calculated as 19.99% Annually. Which means if you borrow $1000 then that $1000 will cost you $199.90 per year. Its important to remember that the $199.90 is only on the original $1000 and the 19.99% will be recalculated on the balance after a year.

R1-  The “R” stands for revolving. The “1” stands for best rating. Revolving credit is borrowed money up to a predetermined maximum amount allowed by the lender, as long as payments are made on time. Example: Credit Card is revolving credit.

R2- “2” stands for 30 days late on a payment

R3- “3” stands for 60 days late on a payment

R4- “4” stands for a payment that is 90 days late. Some accounts may get shut off at this point, or “closed by credit grantor”

R5-R8-  These terms are rarely used for credit reports. By this time the lender has usually sent the file to a 3rd party collection company. In most cases the lender would jump from R4 to an R9 rating.

R9- This is the worst rating an account can get. This rating means that the credit grantor has terminated the account. The outstanding amount will still show on the credit bureau, along with an R9 Rating

I1 – I9.  The “I” stands for “Installment”. an Installment loan is a loan that has a static payment every month. Example would be a car loan. The # ratings are the same as used in “R” ratings.

Billing Cycle – Billing cycle is the time between billings. A credit card company billing cycle may start on the 1st day of the month and end on the 30th. Or it may go from the 15th of the month to the 15th of the next month. Billing cycles are not always 30 days. Each Credit grantor can have different lengths of billing cycles. During this billing cycle all charges, fees, purchases are posted to your account. After the billing cycle your payment is usually due 21 days later(some grantors vary). This is referred to  as a grace period.

Grace Period –  This the period after billing cycle and when your payment is due. If you pay the amount you owe in full, during this period, then you will avoid paying interest on your purchases.

Just My 2 Cents

-M

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