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Understanding your Credit

What is a credit report? 

Along with the credit histories of millions of other people, your credit history is recorded in files maintained by at least one of Canada's two major credit-reporting agencies: Equifax and TransUnion. These files are called credit reports.

A credit report is a "snapshot" of your credit history. It is one of the main tools lenders use to decide whether or not to give you credit.

What is a credit score?

Your credit score predicts your propensity to repay your debts. There are several factors that make up your credit score.
Among those are:

  • your ability to make payments on time,
  • your balance to available credit ratios,
  • the length of time your accounts have been open,
  • whether you have had any reported collections, bankruptcies, foreclosures or tax liens
  • as well as other factors.

* Income is not factored into the credit score equation.

Who can see your credit report?

You have the right to see your credit report at anytime. No one else can have access to the information in your report unless you allow it.

Usually, when you sign documents such as a loan or a credit card application, you are allowing the organization that is giving you credit to check your credit history. Credit-reporting agencies will only give information from your credit report to someone else when you have given permission, and when the request is related to credit, collection of a debt, rental of a house or an apartment, or an application for employment or insurance.

What kind of information does your credit report contain?

Your credit report contains information about your past and present personal and financial situation.

Personal information: This is information such as your name, current and previous address(es), social insurance number, telephone number, date of birth, and your current and previous employer(s).

Credit information: This is information related to any credit you may already have, such as a credit or retail card, a line of credit, a loan or a mortgage.

Banking information: This is information about the accounts you have, including any NSF (non-sufficient funds) or "bad" cheques you may have written.

Public records: This is any information on the public record such as a bankruptcy or a credit-related court judgment against you in a lawsuit. Secured loans, which are backed by an asset (your property for example), may also appear in your credit report.

Collection information: This shows whether you ever had a debt that you could not pay which was referred to a collection agency for payment.

Consumer statement: This is any statement you may have made to explain a particular situation, such as a dispute with a financial institution or a fraud warning.

Credit report inquiries: This is a list of all of the people who have inquired about your credit: yourself, a lender, or any other authorized organization.

How does the credit-reporting agency describe the history of your credit payments?

In your credit report, credit-reporting agencies describe the history of your credit payments in a number of ways.

By rating it:

  • Some credit-reporting agencies report the lenders' rating of each of your credit history items on a scale of 1 to 9. A rating of "1" means you pay your bills within 30 days of the due date. A rating of "9" means that you never pay your bills at all or that you have made a consumer debt repayment proposal to the lender.
  • A letter will also appear in front of the number: for example, I2, O2, R2. The letter stands for the type of the credit you are using.

"I" means you were given credit on an installment basis, such as for a car loan, where you borrow money once and repay it in fixed amounts, on a regular basis, for a specific period of time until the loan is paid off.

"O" means you have open credit such as a line of credit, where you borrow money, as needed, up to a certain limit and the total balance is due at the end of each period. This category may also include student loans, for which the money may not be owing until you are out of school.

"R" means you have "revolving" credit, where you make regular payments in varying amounts depending on the balance of your account, and can then borrow more money up to your credit limit. Credit cards are a good example of "revolving" credit.

By using a payment chart:

This chart shows your payment history over the last two years.

By using a payment scale:

This scale indicates the number of times you paid your bills 30, 60 or 90 days after the due date.

What does a credit report look like?

Below, you will find links to sample credit reports from the two Canadian credit-reporting agencies: TransUnion and Equifax. If you look at these examples carefully, you will see what kind of information a credit report contains. These examples will also help you understand your own credit report. The examples shown are for illustration purposes only.

Links:

Please click HERE to view the complete article for myFiCO - Understanding Your FICO Score or visit: www.myfico.com/crediteducation

Please click HERE to view the complete article for myFiCO - Identity Theft and You or visit: www.myfico.com

For further details please visit: http://www.fcac.gc.ca/ or contact MyMortgage.ca Inc.

In order to obtain a credit report and be able to see your scores, visit: http://www.equifax.com/home/en_ca or http://www.transunion.ca/

HOT TIPS!:

Here are just a few quick tips that can help put you in a better position under the discerning eye of an underwriter!

•    HOT TIP! Do you have past due balances that have been neglected? If they are showing up on your credit report and you want to purchase a home, make sure you bring them up to current status whenever possible.

•    HOT TIP! Do you have outstanding debt that you can afford to pay off right now? Try to get these accounts down to a zero balance, or at least a lower balance. If your cash on hand doesn’t allow you to do this, try to distribute the debt amongst other open credit cards. You can also consider opening a new line of credit and transferring part of the balance off a card that is close to being “maxed out.” If you can get the resulting balances below 50% of the available credit, you’re on the road to improving your credit score considerably in most cases.

•    HOT TIP! Do not close existing credit card accounts, even if you don’t want to deal with the company any more… Believe it or not, the credit history is a good thing to have!

•    HOT TIP! When married couples keep separate credit card accounts, some or all of the balances can be transferred to one spouse’s list of accounts. This gives the other spouse an opportunity to increase their credit score!     

•    HOT TIP! See if your credit provider will increase your available lines of credit. This can, in turn, reduce the overall debt ratio, but only do this if your credit card company can do that without a hard credit inquiry.  

•    HOT TIP! Do you have past dues and charge-offs within the last two years? Pay them off now, if you can! Past dues older than two years will have little to no impact on your credit score if they are paid, but can possibly bring the score down, which is something we don’t want to do... Focus on that 2-year time frame.

•    HOT TIP! Do you see errors in your report? Request the credit bureau delete any outstanding debt that is incorrectly charged to you, or things that should have been removed that you have already paid. They have an obligation to reconcile this within 30 days. If you see items on your report that are less than two years old and you have the money to pay it off now, mark the back of your payment check with the following notation: “Accepting this check is evidence that the transaction is complete and this charge will be deleted from my credit record.” If necessary, you can use this cancelled check as proof of the transaction in the event the outstanding debt is not removed promptly and interferes with the closing of your loan.

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