Understand Credit Trade Lines

January 23, 2010  |  Credit Report Canada

The most detailed and telling parts of a credit report are the loan trade lines. In Canada most credit scores and credit decisions are based on information presented in each loans trade line. This Check Your Credit First Canada post will help you understand what a credit trade line is and will also break down the differences between the two different types of trade lines: Revolving and Installment.



What is a Trade Line?

In Canada a trade line represents any credit account you have, open or closed that reports to the credit bureau. Loans report as trade lines and trade lines report loan information.

A trade line details the type of loan, size of the loan, loan balance, credit limit, loan payment history and more. Trade lines are often the most telling part of a person’s credit file. Many finance institutes look to trade lines to interpret a debtors “story” or credit history.

There are two types of trade lines: Revolving trade lines and installment trade lines.

What’s the Difference Between an Installment Loan and a Revolving Loan?

Installment Loans in Canada

An installment loan has terms with a repayment schedule that requires a regular fixed payment. The amount owed each month on an installment loan never changes.

Installment loans report to the credit bureau as I, for example an up to date installment loan would report as I1.

A good example of an installment loan in Canada is an auto loan. Auto loans have a fixed term and fixed payment amount.

Revolving Loans in Canada

Revolving loans have a credit limit with payment terms that can vary. The payment owed on a revolving loan “revolves” around the balance of the loan. The balance of a revolving loan is based on how often it is used and for how much.

A credit card is a good example of a revolving loan. A credit card has a credit limit and depending on often much it is used, the balance may vary. Most credit cards in Canada require a minimum monthly payment of 3% of the credit cards balance.



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