Checking Your Credit Report & Understanding “Bad Credit”

Posted on 20 November 2018

Are you afraid of “bad credit” and unfamiliar with how your credit history is reported?

It’s true that bad credit can hold you back. Milestones such as financing the purchase of your first home can be impacted by your credit score. You may have heard that “bad credit” can ruin your chances of home ownership and that a bankruptcy will ruin your credit for life. We can help you understand your credit report and how to fix bad credit. You can even repair your credit score if you have to file a bankruptcy.

Credit Report Basics

Your credit report is available from two reporting sources in Canada. Equifax and Transunion should have the same or similar information in their reports. On occasion discrepancies can be found. First, we recommend you pull reports from both bureaus on a regular basis. An annual credit “check-up” is a good idea. We cannot stress this enough – if you pull your own credit report it will not have an impact on your credit score.

You can request your report at any time without causing any damage to your score, it is only when a third party requests your report that your score may be impacted. Too many credit applications and inquiries is factored into your overall score.

Here is an overview each section in your report:

Personal Information – your name, alternatives to your name (i.e. Jonathan aka John Smith), most recent reported address, employment and other relevant identifying information.

List of Accounts – the name of the lender/creditor, how long the account has been open and current balance and account status.

Collections – accounts that have been “sold” to third party collection agencies will be reported here.

Legal – bankruptcy, judgements against you in small claims court will be listed in this section.

Inquiries – a list of the most recent requests for your credit history. It’s a good idea to monitor this section for any signs of fraudulent activity. If you don’t recognize an inquiry on your report you should let the credit bureau know.

What is “Bad Credit”?

“Bad Credit” or “Bad Debt” means that some (or all) of your accounts are reporting at the end of the rating scale. Your accounts will each have a rating based on your payment history. R1 is the first rating and it means that you are making your payments as agreed and on time. Your account is open, you can use it and you have “good” credit on the account. The end of the rating scale is R9 and it is the worst score you can get on an account. An R9 means the account is included in a bankruptcy or has been sent to collections due to nonpayment. R9 means “bad debt” and is the reason you may have bad credit.

The scale starts at 1 and goes to 9, the numbers between correspond with how far behind you are. For example, an R2 means you aren’t very far behind in payments. An R7 is the score you receive if your account has been included in a consumer proposal or a credit counseling program.

If you’ve been missing payments, making late payments, and carrying high balances on your credit cards your overall score will be low or bad. Lenders rely heavily on your score to qualify you for new loans. Obtaining a mortgage becomes much more challenging with a bad credit score.

Bankruptcy and Bad Credit – How Long Does It Last?

If you’ve already got a bad credit score and are struggling to maintain payments on multiple debts, a bankruptcy may be able to help. You may have heard that bankruptcy will “ruin” your credit forever and make bad credit even worse. Bankruptcy allows you to get rid of your bad credit and start rebuilding good credit in its place. Bankruptcy doesn’t “ruin your credit score” it gives you the opportunity to fix it.

Trying to pay off credit in collections with interest could take years – a bankruptcy can free you from debt in as little as 9 months. The credit bureau will report your bankruptcy details in the legal section for 6 years after your bankruptcy ends. If you file a consumer proposal your R7 rating and proposal details will remain on your report for 3 years from the date of your final payment.

It’s Financial Literacy Month and the perfect time to explore your options if you’re worried about bad credit. We can help you discover how good debt-freedom feels, to learn more please call 1-877-501-4321 or book online.

Helpful starting information:

What to Bring to an Appointment

To get the debt help that you need, please bring a list of who you owe and how much to each, a list of everything you own and your monthly household budget. Don’t have everything right away? Don’t worry – We will guide you through each step.

Download Form

Your Information

We’ll walk you through our application process. But, if you want to prepare for your debt free assessment consultation in advance, download our information form and fill in what you can.

Download Form

Calculate Your Debt Repayment Options

How can you compare your debt repayment options if you don’t know how much they will cost you? Your solution will become much clearer when you are able to compare costs.

Debt Calculator

Ready to Be Debt-Free?

If you’re ready to be debt free, it’s time to meet with one of our knowledgeable Licensed Insolvency Trustees at your convenience and get started

Meet with a trustee