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Credit Reports

Your credit report is important to you. Yet, many Canadians have never looked at their own credit report, so it's not surprising that it is often overlooked when individuals assess their financial situation.

There are two major credit bureau agencies in Canada, Trans Union and Equifax. The agencies may have different information about a consumer. To compare and check your credit files from the agencies, here are their addresses:

Trans Union - www.transunion.ca - 1-866-525-0262

Equifax - www.equifax.ca - 1-800-465-7166

If you would like to obtain a copy of your credit report immediately, for a fee, you can receive real-time on-line access to your personal credit report, credit score and a full explanation of your score and how lenders view your credit history.

Equifax Consumer Services Canada at https://www.econsumer.equifax.ca/ca/main?lang=en.

Credit Report Basics

What is a Credit Report?

A credit report is a history of how consistently you pay your financial obligations. A credit report is created when you first borrow money or apply for credit. On a regular basis, the companies that lend money or issue credit cards to you (banks, finance companies, credit unions, retailers, etc.) send the credit reporting agencies specific and factual information about their financial relationship with you - when you opened up your account, if you make your payments on time, if you miss a payment, or if you have
gone over your credit limit, etc.

Equifax Canada receives this information directly from the financial and retail institutions and retains it to help other lenders make decisions about granting you credit. Because your credit report contains all the information received from your lenders and provides a picture of your financial health, other lenders will request your report when they are determining whether or not to grant you a loan. Your credit report is a history that will help them determine what kind of lending risk you are - if you are likely to repay your obligation on time or not.

What is in my credit report?

Below is a list of the major sections found in your credit report:

• Personal Identification - Includes key identification information, such as your name, address, date of birth and Social Insurance Number (SIN)

• Consumer Statement - Allows you, the consumer, to add a brief comment about any information in your report

• Credit Information - Provides details of your credit accounts and transactions and shows if payments are being made on time

• Banking Information - Includes information on your bank account and NSF cheque history

• Public Record Information - Contains information about secured loans, bankruptcies and/or judgments

• Third-Party Collections - Contains information about any involvement with a collection agency trying to collect on a debt

• Inquiries - Includes all organizations or individuals that have requested a copy of your credit report in the past three years

*Note: Mortgage information - Details about your existing mortgage(s) may appear in your credit report. Mortgage information is NOT used to calculate your credit score since it is not reported by all lenders.

How is My Information Used?

Credit information is gathered by credit reporting agencies, sometimes called credit bureaus. There are two major credit reporting agencies in Canada: Equifax Canada Inc., and TransUnion of Canada. Governed by provincial and federal laws, credit reporting agencies store and maintain credit information about individual Canadian consumers for use by members of the credit reporting agency. Members include banks, finance companies, auto leasing companies, credit card companies and retailers.

Credit grantors update individual credit reports regularly by providing information to credit reporting agencies about their customers' credit and payment activities. This ensures that credit reports remain up-to-date and as complete as possible. Other sources of the information contained in your credit report can include public records from courthouses across the country and collection agencies.

Who Can Access My Credit Report?

Federal and provincial laws are very specific regarding who can review your credit report and for what purpose. A company or individual may only obtain a copy of your credit report with your consent or after informing you that they will be reviewing your report. Additionally, an individual or company must have a legitimate business reason and a permissible purpose, as stated in government regulations, to obtain your credit report.

When you apply for a loan or credit card you are usually asked to complete and sign an application form. An application normally includes written consent giving permission to the credit grantor to check your credit report when you first apply and throughout the life of the account. In addition to your name, an application often asks for your date of birth, your current address and a previous address if you've recently moved - information that helps to locate your credit report at a credit reporting agency.

Each time a member of the credit reporting agency requests your report, the request is noted on your report as an inquiry and kept for 3 years. You can therefore see a record of who has requested your credit report and when.

A credit reporting agency may only provide a copy of your report when the request relates to the extension of credit, collection of a debt, housing rental or an application for employment or insurance purposes. Since your credit report contains only factual information, it is important to remember that each of the companies requesting your credit report will interpret those facts in its own way to arrive at a decision.

Credit Score Basics

What is a Credit Score?

A credit score is a statistical formula that translates personal information from your credit report and other sources into a three-digit score. For example, when you fill out a loan application, pieces of information from the application along with information from your credit report will be used to compute a score that indicates to the lender the statistical probability that you will become delinquent on the loan.

Some scores that lenders use are based strictly on the data in your credit report; these are known as "bureau
scores". The most widely-used bureau scores in Canada were developed by Fair, Isaac and Co., headquartered in San Rafael, California.

It is important to understand that a credit score is only one criterion that a lender will use in making decisions. For example, in mortgage lending, the lender will take into account the property being purchased and the homeowner's equity. Many lenders look at their relationship with the customer, which may include other financial services. Each lender will have its own policies and you should feel comfortable asking a credit institution about these. Our work with credit grantors has shown us that most lenders want their customers to have a better understanding of their lending processes.

How Do Lenders View My Score?

Your credit score is an important indicator of your creditworthiness. In general, the higher your score, the lower the probability that you will become delinquent on credit extended to you. And while many lenders use bureau scores to help them make lending decisions, each lender will base its decision on more than just the score.

Lenders use your credit score to determine if you are a good candidate for credit and likely to pay your bills. In the event of bankruptcy, it will also help them determine what type of repayment plan is best for you.

Because your credit report is updated every day, your bureau score is recalculated continuously. So your credit score from a month ago is probably not the same score today.

Most "A" lenders require a score in the 620 or above range. We routinely find mortgages for clients who have lower scores and we can also legally assist clients in increasing their score over a short period of time.

What is Used to Calculate My Score?

• Payment history - Indicates whether you have made your credit card payments, loan payments and other payments on time

• Amounts owed - Compares how much you owe to your credit limits with various lenders

• Length of time in file - Indicates how long you have had credit accounts

• New credit - Shows how often you are looking for new credit and how you handle accounts you have recently opened

• Type of credit - Considers the type of loans you have - car loans, lines of credit, credit card balances

The biggest misconception relates to the number of inquiries that an individual is permitted each year. Consumers are allowed to have a number of inquiries each year without it affecting their credit score. A reasonable amount is 7 inquiries. A strong credit score is extremely important. A credit report is the main indicator of your ability to repay debt.

*Note: Any Mortgage information that may appear in your credit report is not used to calculate your credit score.

How Can I improve My Credit Score?

Make Payments on Time

Making all your debt payments on time especially of credit cards, is the most effective way to repair your credit rating. As you know, every credit account you have is reported monthly. Payment of these accounts, both amount and timeliness, are tracked by credit rating agencies such as Equifax Canada and TransUnion.

Pay More than the Minimum Balance

Not only does this increase your credit rating, but it also saves you a lot of money in interest, and makes a huge difference in your eventual goal of debt retirement.

Keep Your Balances Low

This is an important strategy, and one that will help increase your credit score. You want to keep your balances no higher than 75% of credit available to you.

Avoid Applying for Credit

Every time you apply for a loan or credit card a hit is registered against your credit score, this lowers you score. Only apply when you actually need financing. One common mistake is applying for credit at every car dealership when car shopping. This will greatly affect your score with numerous hits in such a short time period.

Maintain and Use Some Credit

If you have no loans or credit cards in your name it also reflects poorly, you may even have no score at all which is no different than having poor credit. It is recommended to have a minimum $1500 of credit available to you, use this credit responsibly and your credit will rise.

Established Credit History

The longer your history is with each account, the better it is for your credit rating. Keep accounts open for long periods of time rather than re-applying for new cards and canceling old cards.

You will be rewarded for responsible credit handling. Be patient, use the tips above and the passage of time will earn back your good credit profile. In the future when you do need credit for a major purchase such as a car or a house, it will be available to you. Once recovered, maintaining a good credit rating takes discipline, but it's worth the effort. You'll be able to live and enjoy a financially stable life.