Credit: The Good, the Bad, and the Ugly
Most adult Canadians have a credit report if they have had a credit card or any other type of loan. Despite this fact, not many people know what is in their credit report or what their credit score is.
What is a credit report and what does it include?
A credit report is just that – a report/history of your credit. It shows any loans or credit cards that you’ve had in the past six years, and also provides details like whether you regularly pay on time, how much you owe, and what your credit limit is. It also provides a history of any recent inquiries that creditors have made about your credit report. In addition to credit-related information, your credit report includes personal identification information (such as your name, address, birth date and Social Insurance Number (SIN).
In Canada, there are two main credit bureaus that keep track of your credit history: Equifax Canada and Trans Union of Canada.
What do creditors or mortgage lenders look at on my credit report?
Creditors generally look at a few key things on your credit report:
- How many inquiries you have had recently: if you have a high number of inquiries in a short period of time, this could indicate to the creditors that you could be having financial difficulty.
- The notation beside each account that indicates your payment history: the letter R refers to revolving debt (payments that can change month to month, such as credit cards), and the letter I refers to installment debt (payments that do no vary month to month, such as a car loan). In addition to either an R or an I, the account will also be assigned a number if the account is not too new to rate. In that case, the account would be assigned a zero. Otherwise, the numbers range between 1 (paid as agreed) and 9 (bad debt or an account that has been placed for collection or bankruptcy). Ideally, you want R1 and I1 notations, since these indicate you pay your debts on time.
- Your personal information: creditors will check to see that your name, address, birth date and SIN match the information that you have provided them. Any discrepancy could potentially indicate fraud or identity theft (to read more about mortgage fraud, please click here).
- Your credit score: this number gives creditors an extremely quick snapshot of what your credit history is like.
What exactly is a credit score?
A credit score (or Beacon score) ranges between 300 and 900 (or zero if someone doesn’t have a credit history). Credit scores are calculated with a mathematical formula that translates all the information contained in a credit report into a three-digit number that creditors use to gauge, at-a-glance, what your credit history is like. An average credit score is around 650, and a score of 520 or more is generally required to qualify for a mortgage.
How do I get a copy of my credit report?
Once per calendar year, you can request a copy of your credit report be sent by regular mail. To do so, you usually have to send the credit bureau photocopies of two pieces of identification, as well as some basic background information. You should receive your credit report two to three weeks after requesting it. For more details on ordering your credit report, please visit the Equifax and/or the Trans Union websites.
If you want to check your credit score more than once a calendar year, you can receive real-time access to it on the credits bureaus’ websites. For this service, Equifax charges a $23.95 fee, while Trans Union charges $14.95.
What if I find an error in my credit report?
The two credit bureaus in Canada keep track of millions of people’s credit histories, and unfortunately, minor data-entry errors can occur. Occasionally, other more serious mistakes will appear on someone’s credit report. If you find what you believe to be incorrect information on your credit report, it’s possible that it was simply a mistake, or that you’re a victim of identity theft.
To rectify the error, write to the credit reporting agency and tell them you think there’s an error in your file. The form you are required to fill out to do so is included with your credit report (the form is also available online). Be sure to also send along any documents that support your version of why the error is, in fact, an error.
The credit bureau will contact whoever submitted the information in question, and if it is changed you will be sent a new, corrected copy of your credit report. Any company that has requested your credit information in the past two months will also be sent an updated copy of your report. If the information is not changed, you will have the opportunity to submit a brief statement to your credit file with your side of the story. You may also request that a copy of the report with your statement on it be sent to any company that has requested your credit information in the past two months.
If you have any other questions about your credit score or credit report, please visit the Equifax and/or Trans Union website.