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What are credit bureaus in Canada and how do they work?

Posted on 4 September 2023

Written by Colin Boulton

Like many Canadians, you probably check your credit report and credit score regularly. But do you know where the credit reporting information comes from initially? It comes from credit bureaus. Credit bureaus play a pivotal role in Canada’s financial landscape, influencing the ability of individuals and businesses to access credit and financial services. Understanding what credit bureaus are and how they function is essential for anyone seeking to manage their credit effectively. In this article, we’ll explore what credit bureaus are, how they operate, who reports to them, and their significance in the Canadian financial system. So, what are credit bureaus in Canada and how do they work?

What are credit bureaus?

Credit bureaus, also known as credit reporting agencies, are organizations that collect, maintain, and distribute credit information about consumers and businesses. Their primary function is to gather data related to an individual’s or company’s financial history, credit accounts, and payment behavior. This data takes the shape of a credit report. This information is then used by lenders, creditors, and other financial institutions to assess creditworthiness and make lending decisions. In Canada, the two most prominent credit bureaus are Equifax and TransUnion. These credit reporting agencies have been around in Canada for over a hundred years, and they compile credit reports for individuals and credit files for businesses, which contain valuable information about credit activities and financial behaviors. Both credit bureaus only receive information from Canadian creditors, meaning they will only see Canadian debt and financial information on your credit report.

How do credit bureaus work in Canada?

Credit bureaus have a few key roles in Canada:

  • Collecting data – from various sources including financial institutions, lenders, and public records. This data includes information about an individual’s credit accounts, payment history, outstanding debts, and other relevant financial information.
  • Compiling credit reports and scores – from this data, credit reports are collected and credit scores calculated. Credit reports contain a comprehensive record of your credit history, while credit scores condense this into a number that represents your creditworthiness. This varies from 300 to 900 in Canada.
  • Sharing credit information with lenders – lenders and financial institutions will request credit reports and scores from credit bureaus when an individual or business applies for credit. The information helps them to evaluate the credit risk associated with each applicant. A higher credit score suggests a lower risk borrower.

Who reports to the credit bureaus in Canada?

The vast majority of creditors and lenders will report to the credit bureaus, including the following:

  • Financial institutions – including banks and credit unions
  • Credit card companies
  • Collection agencies
  • Cell phone companies
  • Public records
  • Court-ordered judgements
  • Landlords, in some instances
  • Student loan lenders

Some accounts are not typically reported to the credit bureaus. These include the following:

  • Gas accounts
  • Hydro accounts
  • Gym memberships
  • Payday loan lenders – unless you default on your payments
  • The Canada Revenue Agency (CRA) in order to keep your information confidential

What information can you find on a credit report?

Credit reports are usually split into four sections:

  • Personal information – your name, address, social insurance number, and date of birth
  • Creditor trade lines – the accounts you have with lenders, your current balance, credit limit, and your payment history
  • Credit inquiries – details of who has been looking at your credit report, both soft and hard. Soft inquiries usually take place when a creditor performs a simply check on you, or if you pull your own credit report. Hard inquiries impact your credit, and happen when you apply for financial products like credit cards. Having a number of hard inquiries can lower your credit score and hinder your ability to borrow
  • Public records and collections – any legal activity like a bankruptcy or consumer proposal, court judgements, liens, and accounts in collection

It is important to note that your credit report is not always a strong indicator of an individual’s financial success. It does not, for instance, include financial information like assets, investments, or account balances. We recommend acquiring a copy of your credit report and reviewing it at least once a year. You should check it for any errors, so that you can quickly contact the credit bureaus and have them rectified. You will need to provide evidence in case of dispute. Both Equifax and TransUnion allow you to download a free copy of your credit report once a year.

Who do credit bureaus work for and are they regulated?

Contrary to popular belief, credit bureaus do not work for consumers. They focus instead on meeting the needs of their members – banks, financial institutions, car loan providers, credit card companies, and so on. Despite serving lenders, credit bureaus themselves do not approve borrower applications. They are independent, and simply inform lenders on individuals’ credit reports so that they are equipped to make decisions. Credit bureaus are regulated by each province, and must follow certain regulations. This includes only sharing a consumer’s credit information for a legitimate reason (for instance, giving credit or employment), and informing you should a financial institution refuse you credit based on your credit information.

Which credit bureaus in Canada are legitimate?

In Canada, there are only two official credit bureaus – Equifax and TransUnion. You may be aware of other credit report providers, like ClearScore and Borrowell, but you should note that these companies get their data from the two primary credit bureaus too. There is no new information that you can pull from these companies. While these companies might offer a free credit score, Equifax also offers a free credit score via MyEquifax. You should also note that alternative credit report providers will likely try to sell you credit products like loans and credit cards. You should be wary of borrowing additional funds if you do not need them.

Credit bureaus in Canada play a crucial role in the financial ecosystem, providing lenders and creditors with the information they need to make informed lending decisions. Maintaining a positive credit history is essential for securing loans, credit cards, and other financial services. If you are concerned about your credit score, book a free consultation with Spergel. Our experts can review your financial circumstances and recommend steps to take to rebuild your credit score.

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Colin Boulton

Colin Boulton is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on unemployment and wage garnishments and manages Spergel's offices in Eastern Ontario (including Oshawa, Peterborough, Lindsay, Ajax and Scarborough). When not at the office helping clients cross their debt-free finish lines, Colin enjoys training for and participating in triathlons.

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