Everybody has a credit report, and when it comes to finances, it is an extremely important record. If you want to take out any form of credit, lenders to whom you have sent an application will use your credit report as a basis for making their decision. Even employers can use your credit report to see how much risk you are associated with. Ultimately, your credit report is a summary of your credit history and payment behaviour. For these reasons, it is crucial that you understand your credit report to make sure it is updated and correct.
What is a credit report?
In short, your credit report is an overview of your credit history. It is made up of two simple parts – how much credit you have used, and how you usually pay your credit. These can be summarized as follows:
- How much credit you have used – this covers any credit you may have at maximum balance. If you maximize your credit often by being close to or over credit limits, this can have a negative impact on your credit score. This is because it implies that you cannot spend within your means. You should try to have a balance of 50% or less of your available credit wherever you can. Your credit score can also be affected by having too many credit cards and loans. Too many applications for credit in one year will impact your credit too. It once again suggests that you are seeking credit and living beyond your means. This is a not a good signal for lenders, who could think twice before agreeing to give you more credit.
- How you pay your credit – you should always try to make your credit payments on time. Any late payments that you make will be reflected on your credit report. If you are between one and five months behind on a payment, but then you become current on your payments, your overall credit score will be restored as being in good standing. It will, however, remain on your credit report for six years since the last activity. If you are six months or more behind and you encounter a repossession, your credit rating will remain for six years since the last activity. This is whether you are current on your payments or not.
Both of these sections of your credit report will impact your credit score. Your credit score is the value that lenders use to assess your level of risk as a borrower. Your credit score is calculated from all of the activity on your credit report.
What information is included in a credit report?
As well as the criteria above, your credit report contains personal, financial, and credit history information. Typically, it takes around one to three months for information to be updated in your credit report. Here is an overview of the details stored in your credit report:
Personal information included in your credit report
- Your name
- Your date of birth
- Your current and previous addresses
- Your current and previous telephone numbers
- Your social insurance number
- Your driver’s licence number
- Your passport number
- Your current and previous employers
- Your current and previous professions
Financial information included in your credit report
- Any non-sufficient funds payments, or bad cheques
- Any chequing and savings accounts closed due to money owing or fraud committed
- Any credit you may have including credit cards, store cards, loans, or lines of credit
- Any bankruptcies or court decisions against you in reference to credit
- Any debts sent to collection agencies
- Any requests or inquiries from lenders who may have wanted to see your credit report in the last three years
- Any liens that permit the creditor to seize your assets if left unpaid
- Any consumer statements, fraud alerts, or identity verification alerts
- Any mortgage or mortgage payment history
- Any home equity lines of credit (HELOCs)
Account information included in your credit report
- The date you first opened your account
- The total amount that you owe
- Whether or not you make your payments on time
- Whether or not you miss payments
- Whether or not your debt has been transferred to a collection agency
- Whether or not you go over your credit limit
- Any publicly available information, including bankruptcy
Who creates your credit report?
In Canada, there are two main credit bureaus – Equifax and TransUnion. Both of these credit bureaus are private companies that collect, store, and share information about consumers in relation to how they use credit. They then use this information to calculate your credit score. Both Equifax and TransUnion will only collect financial information from creditors within Canada.
Who can access your credit report?
There are a number of reasons why a business may want to access and review your credit report. These typically include wanting to make a decision as to whether or not to lend you money, consider you for a rental property, consider you for a particular role, provide you insurance, offer you a credit increase or a promotion, or even to collect a debt. The primary credit bureaus in Canada will define who can see your credit report and how it is used based on these reasons. Generally speaking, the credit bureaus may show your credit report to the following individuals or businesses:
- Banks or financial institutions
- Credit card companies
- Stores or retailers
- Car leasing companies
- Mobile phone companies
- Insurance companies
The above are most likely looking to see if many credit checks or inquiries have been carried out into your credit report. This is because it could suggest that you are in desperate need of credit, or attempting to live beyond your means. Both of these reasons could be considered red flags. In most scenarios, you will need to give written consent for someone to access your credit report. This is with the exception of within the provinces of Nova Scotia, Prince Edward Island, and Saskatchewan. In these territories, an individual or business only needs to inform you that they are intending to view your credit report.
Understanding your credit report
It can be confusing at first to understand your credit report, and each of the components included within it. Credit reports use codes to share information with the credit bureaus about your financial activity. There are two primary codes – a letter to indicate the type of credit you have, and a number to show your payment behaviour. The letters correspond as follows:
- I – instalment credit, where you borrow money for a fixed amount of time. You will make regular payments until your loan is paid off, e.g. a car loan
- O – open status credit, where you borrow money when needed up to a certain limit, e.g. a mobile phone account
- R – revolving or recurring credit, where you borrow money up to your credit limit on an ongoing basis. You will make payments depending on how much is on the balance of your account, e.g. a credit card
- M – mortgage loan, which will be included on your credit report
The numbers will be applied to each letter depending on the credit you have, and correspond as follows:
- 0 – too new to rate
- 1 – paid within 30 days of billing
- 2 – late payment by 31-59 days
- 3 – late payment by 60-89 days
- 4 – late payment by 90-119 days
- 5 – late payment of over 120 days
- 6 – (not used)
- 7 – making regular payments via debt consolidation, a debt management program, or a consumer proposal
- 8 – repossession
- 9 – ‘bad debt’ that has been written off; debt sent to a collection agency; bankruptcy
An example would be R1 to indicate a credit card that is paid off on time. The best credit rating is a 1; 9 is the worst. Any rating over 1 will probably damage your credit score. Check out our tips on how to rebuild your credit score.
Want to learn more about your credit report, and how to understand yours? Book a free consultation with Spergel. We can help you to interpret your credit report, and can work with you to rebuild your credit score. At Spergel, our Licensed Insolvency Trustees have been helping Canadians begin fresh financial futures for over thirty years, and we can help you too. You owe it to yourself.