To help you get a deeper understanding, we have answered some common questions about what the main credit bureaus are in Canada, how they work, who reports to them, and other key facts to know.

What is a credit bureau?

A credit bureau is an agency (also called a credit reporting agency) that collects credit information about you from your creditors and lenders and puts together this data in the form of a credit report.

In Canada, there are two official credit bureaus called Equifax and TransUnion. Both Equifax and TransUnion were originally founded in the United States. Equifax opened in Canada in the early 1900s and TransUnion Canada was formed in 1989.

Equifax and TransUnion are private companies in Canada, and they only receive information from your Canadian creditors, which means you will only see Canadian debt and financial information listed on your credit report.

Who reports to credit bureaus in Canada?

Most creditors and lenders report to the credit bureaus, including but not limited to:

• Financial institutions like banks and credit unions
• Credit card companies, retail, and store cards
• Collection agencies
• Some cell phone companies, cable, and internet providers
• Public records like bankruptcy or consumer proposal
• Court-ordered judgments and registered items like a lien on a car

You may be wondering if your landlord reports rent payments to the credit bureaus. The answer is they may, but it is up to the individual landlord to decide if they want to pay a fee to do so. There is also a Landlord Credit Bureau (LCB) that currently operates in British Columbia, Alberta, Saskatchewan, Manitoba, and Ontario. Landlords may voluntarily report to the Landlord Credit Bureau. The LCB then passes this rent payment information to Equifax Canada where it will appear on your credit report. It’s important to know that if you fall behind on your rent payments and they wind up in collections, that collection activity will appear on your credit report.

Student loans, both private and government, are also usually reported to the credit bureaus and can affect your credit rating.

There are also certain accounts that are generally not reported to the credit bureaus and so will not appear on your credit report including your gas, hydro account, or gym membership, for example. Payday loan lenders also don’t report to the credit bureaus unless you default on your payments and your loan goes into collections. Loans in collections are reported to the bureaus and will appear on your credit report.

The Canada Revenue Agency generally does not report to the credit bureaus either. The CRA keeps your information confidential. If you file your tax return, any tax debt will not be reported to the credit bureaus. The exception is if you owe a significant amount of tax debt and make no effort to pay it back at all, then the CRA will involve their collections department. They can then get a court judgment against you for the debt, and that judgment will appear on your credit report in the legal section. So, while simply owing tax debt won’t affect your credit health, not paying your tax debt and being sued for it, will. Learn more about how owing taxes affects your credit in Canada.

What information is on a credit report?

Your credit report information is divided into four main parts:

1. Personal information: Your name, address, social insurance number, and date of birth.
2. Creditor trade lines: These are the accounts you have with lenders, and it includes the name of the lender, the type of account (credit card, mortgage, line of credit, installment loan, etc.), the date the account was opened, your current balance, credit limit, and your payment history (late payments or payments made on time).
3. Credit inquiries: This is information about who has been looking at your credit report. There are two types of inquiries – soft and hard. A soft inquiry involves creditors performing a simple credit check on you or you pulling your own report and it has no impact on your credit. A hard inquiry does impact your credit and happens when you make a credit application for things like a loan or credit card, for example. You want to avoid having too many hard inquiries, as it will lower your score and ability to borrow.
4. Public records and collections: This is where you would see legal activity like a bankruptcy or consumer proposal, court judgments, liens (against your car, if you have a car loan), and accounts in collection.

Your credit report also provides your credit history, which shows the type of credit you have and how often you make your payments.

Items that are not listed on your credit report include your income and bank (chequing and saving) account balances. Your credit report also won’t show any assets or investments you may have. It is, therefore, not always a good indicator of how financially successful a person is because a lot of financial information is omitted.  

Getting and reviewing a copy of your report at least once a year is a good practice. If you see any errors on your credit report, you can contact the credit bureau directly to dispute them. Filing a dispute is free, but it is your responsibility to prove that any issues with your report are wrong.

Both Equifax and TransUnion allow you to get a free copy of your credit report, so we would encourage you to take advantage and check regularly for any errors or fraudulent activity from identity theft.

Who do credit bureaus work for and are they regulated?

You may be surprised to learn that credit bureaus do not work for consumers. Instead, they serve their members, which include banks, finance companies, auto loan or lease providers, credit card companies, and collection agencies.

But despite working for lenders, credit bureaus do not make lending decisions. They are independent entities that simply communicate information between the consumer and the lender via credit reports.

Credit bureaus are regulated at the provincial level and have basic requirements they must follow, two of which are most relevant for you – the consumer:

1. Limiting access to your credit information only to those with a legitimate reason. These reasons can include giving you credit, tenancy, insurance, employment, and can also include debt collection, for example. It is an offence for anyone to get your credit information from an agency for a reason that doesn’t involve a credit transaction with you.
2. Adverse action. This means, for example, that you must be notified if a financial institution denies you a claim based on your credit information or if a charge is increased because of your credit history.

At a federal level, credit bureaus have to abide by the Personal Information Protection and Electronic Documents Act (PIPEDA), which is a Canadian law relating to data privacy. It governs how private companies collect, use, and disclose your personal information. 

What are not credit bureaus in Canada?

As mentioned, Canada has only two official credit bureaus – Equifax and TransUnion.

But perhaps you have also heard of other credit report providers like Borrowell, Credit Karma, and ClearScore. You should be aware that companies like Borrowell, Credit Karma, ClearScore and any other alternative credit reporting company pulls data from the two main credit bureaus too. They do not provide you with any new information that you can’t obtain directly from the two official sources yourself.

The only thing these companies can give you is access to a free credit score. But recently, Equifax Canada has started providing consumers with a free credit score as part of their reporting when you go through MyEquifax. TransUnion, however, still charges a fee for credit score information. The problem is, getting this free credit score from an alternative credit report provider comes with a catch. The main goal of these alternative credit reporting companies is to sell you credit products like personal loans and credit cards.

The way it works is, before you can access your free credit score from either Borrowell, Credit Karma, or ClearScore, you must provide them with a lot of personal information – details that are not on your credit report – like your annual income and personal financial goals. They then use this information to tailor debt services to you. The risk is that you may be end up borrowing when you otherwise wouldn’t have. If you do decide to use an alternative credit monitoring service to get a free credit score, think twice before accepting any promotional offers you get and ask yourself if you really need more debt.

Another issue is that companies like Borrowell, Credit Karma, and ClearScore may not provide you with a credit report that is up-to-date, or it may have several errors. To fix these errors, you will need to contact the main credit bureau they used directly. Credit Karma and ClearScore retrieve your information from TransUnion. Borrowell gets it from Equifax. Of course, you can just skip the middleman and rely solely on the two official bureaus for all your credit reporting needs.

In summary

Canada’s credit bureaus are keepers of your credit history. Each credit bureau manages its own database, so your credit report may be slightly different depending on the bureau you pull from. Also keep in mind that while most banks and lenders report to both credit bureaus, some only report to one, which is why we recommend that you get a credit report from both TransUnion and Equifax to ensure both reports have accurate information. Your creditors and lenders also do their part in ensuring accuracy by submitting regular reports to the bureaus.

Understanding how the credit bureau system works, as well as your rights and obligations, is an important part of maintaining your financial literacy and personal finances.

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This guide will explain the five factors that make a good or bad credit score and address the most common questions we receive about what does and does not affect your credit rating.

The 5 main factors of a credit score

A credit rating is a score that provides lenders with a risk assessment about your creditworthiness. This score is determined by a credit report that includes your payment history on loans, credit cards, and certain bill payments. It tracks when you opened or closed accounts and whether your payments were on time, missed, or sent to collections.

Your credit history is updated monthly and processed by two credit bureaus in Canada: Equifax and TransUnion.

Credit scoring companies have a complicated mathematical algorithm to calculate your score, but their factors can be broken down into five main categories.

1. Payment History

Your payment history accounts for 35% of your credit score and is the most important factor you can control. Even a single late payment will lower your credit score. The higher your credit rating, the harsher the penalty for late payments. If you don’t miss any further late payments, your score may recover quickly; however, multiple late or missing payments will cause severe credit damage.

Late payments stay on your credit report for up to six years, although the impact of old late payments is less than new late payments.

2. Amount of credit in use

The balance due on your accounts calculated as a percentage of the amount of credit available to you (your credit limit) determines your debt to credit ratio, also referred to as credit utilization. A low credit utilization ratio leads to a higher credit score. Credit utilization also accounts for about a third of your credit score.

If you have maxed-out credit cards or lines of credit, this is a sign to lenders that you are a high-risk borrower. Accounts kept near their limit show lenders that the borrower is likely living beyond their means. However, if you don’t use anywhere near your limit, you will have a better credit score.

3. Length of credit

How long you have held a credit card account or line of credit shows potential lenders that you have experience managing credit. The longer you have a credit account, the better. Lenders like to see a long history of borrowing and paying off on time. Keeping long-term credit accounts in good standing will provide a strong credit score.

4. New credit

While it is important to hold credit to establish a positive credit rating, you should avoid opening new accounts frequently. Just as long-held credit accounts are good for your score, fresh debt can impact your rating in the negative.

Shopping around for new credit with multiple credit inquiries and loan applications will indicate to potential lenders that you may be a high-risk borrower. Taking on new cards and closing accounts frequently will also lower your report’s average length of credit history.

5. A good credit mix

Even if you always make your credit card payment on time and try to avoid maxing out your credit card, if you only hold one credit account, you will not reap the same benefits as a borrower with a good credit mix. You need to show a history of handling more than one credit account if you want a solid credit rating. Having multiple types of accounts, including installment loans like a car loan along with credit cards or a line of credit, can help your credit score.

Still, our experience tells us that having even two credit cards with a reasonable credit limit will help you build a good credit score. If you have declared bankruptcy or filed a consumer proposal and want to improve your credit score again, you will need to establish new credit accounts over a several months.  Most traditional lenders want you to establish two new active accounts with a minimum credit limit of $3,000 each and keep a good payment history for three years to qualify for a low interest mortgage or term loan.

What helps your credit score?

There are multiple things you can do to help your credit score improve. However, you’re already taking the first step by learning how credit scores are calculated.

We also recommend reviewing your credit report at least once a year for accuracy. You do not want your score calculated based on incorrect information.

You can check out the credit bureaus’ websites or call them to obtain your free credit report:

• Equifax Toll-Free 1-800-465-7166
• Trans Union Toll-Free 1-866-525-0262

Pay bills on time

Paying your bills on time is the number one way to improve your credit score.

Unexpected life events happen to everyone, so there are two things I recommend that can help you stay on top of bill payments:

1. Automate your bill payments, so you do not accidentally forget a payment.
2. Have a small emergency fund, say up to $1,000, to cover you when the unexpected happens rather than using credit you can’t repay.
3. Stay in communication with your credit cardholder or accountholder when severe financial hardships occur. If you know you will miss several payments due to an illness or work loss, see if they will provide you with a grace period. You will need to be in good standing with them, so don’t wait until you are already behind to reach out.

Keep utilization low

It’s generally advised that you not use more than 35% of your available credit if you want a good credit score. Using more than 35% of available credit shows lenders you are a high-risk borrower, even if you pay off the total amount every month. The impact of high balances on your credit is nearly the same as missing a bill payment.

If you are working to repair poor credit, we recommend keeping your utilization rate as close to zero as you can.  You can do this by paying off your credit card as soon as you charge a purchase. We often advise clients to set up a single recurring payment, like a cell phone bill, then pay it off as soon as the charge is posted. This helps you ‘use’ your credit account while keeping your balance at zero.

Limit credit inquiries

While checking your credit history at least once a year shows financial responsibility, applying for multiple forms of credit in a close time frame will negatively impact your credit score. This shows potential lenders you may be living outside of your means and may use credit you can’t repay.

If you are shopping around for a good rate, be sure to ask the lender if they will be doing a hard or soft hit to your credit report.  Soft inquiries are for background checks or pre-approvals and don’t affect your credit score. Hard inquiries appear as formal credit applications and are recorded on your credit history for three years.

Checking your own credit score or pulling your own credit report does not affect your credit score.

Don’t close too many accounts

Is it good for your credit score to close old accounts?

Living debt-free is a great goal that many Canadians are aiming for. If you’ve paid off debt on your own, don’t close your account. It helps your credit score if you show you can manage open credit accounts for a long time. Even if the balance is zero, closing an account will reduce your credit score.

If you have filed a bankruptcy or consumer proposal, these debts will be marked as ‘included in bankruptcy’ or ‘included in proposal’ and will be closed.  Your goal will now be to open two new accounts as you rebuild.

Having a secured credit card

Will a secured card help you improve your credit score?

If you are rebuilding credit after an insolvency proceeding and do not yet qualify for a regular credit card, you can apply for a secured credit card. A secured credit card will impact your credit score because transaction activity is reported on your credit report like any other type of credit card. Your credit limit, outstanding balance and payments will appear monthly and help you build a good history of using credit cards wisely.

Do prepaid credit cards affect credit? Unfortunately, no. Prepaid credit cards do not affect your credit score because they are not reported to the credit bureau. Because you preload money on the card and use them more like a debit card, prepaid cards are not really a loan or borrowing mechanism.

What hurts your credit score?

Now that you know the ways to improve your rating, I’d like to talk about credit score factors you should avoid.

Missing or late payments and high credit card balances will impact your rating negatively, but there are smaller factors that many Canadians don’t think about. These are the top “invisible” actions to avoid that hurt your credit score.

Late payments on utility or service accounts

Credit scores are affected by any company reporting payments to the credit bureaus.  In Canada, service accounts like your cell phone, home phone, cable and internet accounts are included on your credit report.

Paying your cell phone or internet bills on time generally will not improve your score because these payments are small. However, a late payment on a service account will have the same negative impact on your credit rating as a late payment on a credit card. So, keep all your accounts up-to-date to avoid hurting your score.

Outstanding fines

If you don’t pay a fine or traffic ticket, the province or municipality can send these kinds of fines to collections. If the collection company wants to, they can report the amount owing, and it will appear, not as a fine, but as an account in collection.

Similarly, outstanding fees like 407 ETR debts can appear on your credit report if sent to a collection agency.

When you receive a fine or fee, acknowledge it with the ticketing organization. You may be able to argue for a reduced amount, a payment plan, or for the fee to be waived. Either way, deal with it to avoid the fine going to collections and becoming a negative factor on your credit score.

Credit report errors

Credit reporting agencies get their information from lenders, and unfortunately, mistakes are common. The simplest – like your name, address, phone number, or employment history won’t affect your score but can affect your ability to qualify for a loan if they make it hard to confirm who you are. Other credit report errors, like incorrect balances, negative information reported incorrectly or not removed when they should be, or incorrect payment history, can harm your credit and lower your score. We recommend reviewing your credit report at least once a year to ensure accounts are being reported correctly.

Government debts

The Canada Revenue Agency is responsible for collecting outstanding tax debts and Canada Student Loans in arrears. 

In general, tax debts do not affect your credit score because they are not reported to the credit bureau. The exception is if CRA obtains a court judgment that can appear in your report’s public record section.

Canada Student Loan payments are usually reported to the credit bureaus, including your payment history. Falling behind on your student loans can hurt your credit score.

Identity fraud

Taking the time to get your annual free credit history is vital to combat identity fraud. In Canada, identity theft is rising, and this can impact your credit score by having loans outstanding in your name that you are unaware of and didn’t authorize. Take control of your financial history by monitoring what is on your report, and dispute any nefarious transactions or credit applications before they do long-term damage.

What else do lenders look at when approving new credit?

While your credit score is an important factor in getting new credit, this is not the only requirement financial institutions will look at when reviewing your loan application. Lenders will look at:

• the amount and stability of your income,
• your current debt load and debt-to-income ratio,
• any assets you can use for collateral,
• your credit score.

Six credit score myths you should know

There are myths many Canadians share surrounding credit scores and credit history. Here are some of the top myths regarding credit scores:

Myth: Bankruptcy means you can’t access credit again

Filing a bankruptcy or consumer proposal is a step an individual can take to overcome overwhelming debt. While these processes do limit the credit available to you for a period of time, they will not stop you from accessing credit in the future.

The fact that you filed will appear on your credit report. Like with late payments, credit reporting agencies have retention policies for how long your bankruptcy or proposal remains on your credit report:

• a bankruptcy will remain on your credit report for 6 to 7 years from filing,
• TransUnion and Equifax websites say they will remove a proposal the earlier of 6 years from the date of filing or 3 years after completion.

Monthly bankruptcy or proposal payments are not reported on your credit report and have no impact on your credit score. Licensed Insolvency Trustees do not report any information to the credit bureau. Information about your bankruptcy or proposal is reported by the Office of the Superintendent of Bankruptcy. They will report whether you filed a bankruptcy or consumer proposal, the date you filed and the date of completion or discharge.

When your debts and credit history are too much for you to handle, taking steps to make a fresh start through a bankruptcy or proposal will help deal with your debts and allow you to restore your financial health and get you started on rebuilding your credit.

Myth: It is always good to increase your credit limit

Increasing your credit limit or accepting a pre-approved credit limit increase has both positives and negatives in terms of your credit score and overall financial health.

While higher limits can lower your credit utilization rate and help you keep your debt at 35% or lower of the available credit, raising the limit can also impact your score poorly by giving you access to more debt if you can’t control your balances.

The lender may also require a hard inquiry to increase the limit, so if you’ve recently applied for other loans, increasing the limit may lower your score initially. Even if you have been offered a credit limit increase, ask if the lender will do a hard hit after you accept.

Lastly, even if you have a high credit score, if you have a lot of available credit, a new lender may deny your application because they feel you already have too much credit available already.

The key is, only apply for credit when you absolutely need it.

Myth: Spouses share credit scores

Everyone who borrows has their own credit score in Canada. If one person in a partnership has poor credit or requires financial assistance, such as declaring bankruptcy, this will not affect the other partner’s credit score. It may only affect the other person’s credit if a debt is joint or is co-signed.

Myth: Paying off your car loan hurts your credit score

Once you pay off a term loan, like a car loan, the account will be closed since you’ve finished making payments under the term of the loan agreement. Closed accounts paid as agreed will be purged from your report ten years from the last reporting date.

Paying off your car loan won’t necessarily hurt your credit score, but if you are working to rebuild credit, having a monthly on-time car loan payment appear on your credit score will help improve your credit score if you are rebuilding.

Myth: Credit repair loans can improve your credit score

There are plenty of credit repair agencies proposing to set you up with small monthly payment plans they say are designed to help you rebuild your credit. The idea is they report these monthly payments to the credit bureau.

In truth, most credit repair programs do not work as advertised and can, in fact, have a significant negative impact on your credit report if you miss a payment, not to mention the costs associated with these loans.

Myth:  Assets and income can improve your credit score

Most people are surprised to learn that your income and assets do not affect your credit score. Someone with a higher income may have a higher score, but that is likely because they can qualify for a higher credit limit and can afford to keep their balances low. How much they earn is not a factor. Similarly, having equity in your home does not improve your credit score.

Your income and assets you use as collateral can improve your chances of qualifying for a new loan. These are additional factors outside your credit score a lender will review in a loan application.

Repair your credit score with our free course

At Hoyes Michalos, we know that repairing your credit score can be done. Understanding the factors of a credit score is helpful if you’re looking for the steps to help you rebuild your credit on your own. Consider enrolling in our free credit repair course to learn more about how to improve your credit score.

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Should I get a credit card after bankruptcy?

After filing a bankruptcy or consumer proposal, most people believe they need a credit card. Getting a new credit card can be beneficial:

• Building credit after bankruptcy requires obtaining new credit and re-establishing a good payment history. A credit card is the best type of credit to begin your credit rebuilding.
• You may need a credit card for online payments, to rent a car or book a hotel room, instances where you can’t use debit cards or transfer money from your bank account.
• A credit card might make keeping track of your spending easier than using cash.
• And of course, there are the standard credit card benefits like purchase protection and earning rewards or points.

Credit cards are often considered a need, especially for those who are credit building. The problem, however, is that they pose a risk that you will end up with more credit card debt after bankruptcy.

Beware the disadvantages of credit cards

As a Licensed Insolvency Trustee, my number one concern with anyone getting a credit card after their bankruptcy or proposal is that they will rack up new debt. However, this doesn’t have to happen as long as you are aware of the risks.

Credit card spending can get out of hand quickly if you use your credit cards for everyday purchases like groceries or gas and to pay for vacations, clothing and everything you buy. If you go back to these old spending habits, you may find yourself with a credit card balance you can’t repay.

You will not be eligible for prime, low-interest credit cards as you first begin to rebuild your credit. Most will have a minimum interest rate of 19.99%, and some will have an annual fee. Over-the-limit fees can be $29 or more, and if you bounce a payment, you may pay an additional $45.

To avoid these costs, use your credit card responsibly. That means charging only what you can afford and making timely payments. If your spending personality is to use what credit you have to buy things you don’t plan for, get a credit card for rebuilding but leave it at home when you shop. Later in this article, I’ll provide additional strategies to use your credit card to improve your credit score without getting into financial trouble again.

And it’s OK not to have a credit card. If you don’t need new credit in the future, you don’t need to worry about your credit score. So long as you have a bank account and debit card, there is no need for a credit card anymore. There are alternatives to credit cards you can use to make payments. Consider digital options that link to your bank account, like PayPal, for example. A prepaid credit card can be beneficial when you need to make a VISA or MasterCard type of payment.

Which credit card will help me improve my credit score?

Read Transcript

Should you decide to get a credit card after bankruptcy, here are some factors to consider before applying.

Should you get a secured or unsecured credit card? A secured credit card requires a security deposit, where the credit limit depends on your initial cash deposit. If you want a $1,000 credit limit, you need to save up that amount before applying. A secured credit card is easier to get, especially if you are still an active bankrupt. Secured credit cards can help you repair your credit score because you still make monthly payments, and your credit card issuer will report these to the credit bureaus. The security deposit is only used in the event you don’t pay.

Unsecured credit cards rely on a credit card provider’s assessment of your creditworthiness to loan small amounts to those with low credit scores. Once you can prove to the credit card company that you are responsible enough to pay off what you borrow, they may be willing to increase your credit limit.

Options can include a traditional Visa or MasterCard, or store card. My recommendation is to avoid cards that have an annual fee.

Several credit card issuers, such as Capital One or Canadian Tire, are more inclined to issue an unsecured credit card to someone with bad credit due to a bankruptcy or consumer proposal. Assuming these creditors were not included in your bankruptcy or proposal, credit card companies such as MBNA, TD, CIBC, and PC Financial, in that order, are good second card choices.

How does a credit card rebuild credit?

The main point of obtaining a credit card is to have a revolving credit account that gets paid off frequently and to have those payments reported to the credit reporting agency. Keeping a zero balance on the card while making adequate monthly payments will help increase your credit rating. 

To fully rebuild your credit to qualify for a larger loan, like a mortgage or car loan, you will ultimately need two new credit lines with a minimum limit of $3,000 – an unsecured credit card can help you with this.

However, this takes time. In most cases, you should be able to build a good credit score two years after your bankruptcy discharge or consumer proposal completion. Our recommended process is as follows:

1. Clean up any errors on your credit report.
2. Apply for one credit card with a small limit.
3. Wait a few months to apply for a second card.
4. Wait a few more months to increase your limit for card one.
5. Wait a few more months again to increase your limit for card two.
6. Always pay on time and keep your balances low.

You will notice I mentioned that you should wait between each stage. That is because applying for a new credit card, and asking for a credit limit increase, will show on your credit report as hard inquiries and will temporarily lower your credit score.

Credit card strategies that look good on your credit report

Once you have your new credit card, the two most important things to rebuild your credit are making on-time payments and keeping your balances low. Always avoid late payments. A missed or late payment on your credit card will result in interest charges and, more importantly, derail your attempt to repair your credit rating.

As long as the credit card company reports payment activity to the credit bureau, there is no need to maintain a monthly balance on your credit card to re-establish credit. Having a low utilization rate on your credit card at all times will improve your credit score faster, and in our experience, a utilization rate of zero is best. You can accomplish this by only using your credit card for a small recurring payment, like your cell phone bill or Netflix, then paying off the balance immediately. You do not need to wait until the end of the month or billing cycle to make a payment.

Having a credit card and not using it can help improve your utilization rate, but it’s still better to put a small charge on your card and show a credit history of regular monthly payments.

Good credit card habits for your finances

Yes, you wanted to get a credit card to rebuild your credit, but we know you may be tempted to use credit cards in your daily life. If you do, here are some tips to ensure you use your credit cards wisely so your balances don’t get out of hand.

1. Until you know you can manage your budget, keep your credit card charges to a small recurring bill, which gets paid every month.
2. Avoid large purchases because they increase the amount due on the monthly bills.
3. Don’t take out cash advances, as you will pay interest right away. Using your credit card for cash likely also means you are not managing your money well.
4. Don’t rely on your credit card for an emergency. Set aside a small cushion, say $500 to $1,000, in an emergency fund to cover you when you have an unexpected expense.
5. Use your credit card as a payment tool, not a borrowing tool.

Obtaining a credit card and using it for small purchases only can increase your credit score and ensure that you don’t get into trouble with credit cards again.

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This article explains what types of negative information affect your credit score, how long bad information stays on your report, and what you can do to hasten its removal or improve your score.

What negative information appears on your credit report?

Equifax and TransUnion are the two main credit reporting bureaus in Canada. The reports are often different between the two since not all creditors communicate with both credit bureaus, and each credit reporting agency has its own purge rules as to when information is removed from your report. That’s why it is always best to understand how each credit bureau treats negative information.

Below is a list of negative items that can appear on your report and the purge periods.

Inquiries

Every time you make an application for credit and your potential lender or creditor requests a copy of your credit report. This credit check is called a hard inquiry. A hard credit inquiry remains on your report for 3 years.

Late payments

Late or missed payments are the most common negative information on credit reports.

• Late payments are removed from your Equifax credit report 6 years from the date reported, even if you pay the past-due balance.
• TransUnion removes accounts with negative payment history 6 years from the date you defaulted.

Accounts in collection

If you are several payments behind, your creditor may send your account to collection and report such action to the credit bureaus.  If you never pay off the account, the creditor may eventually write-off, or charge-off, the balance.

• Equifax removes collection or charged-off accounts 6 years from the date of your last payment.
• TransUnion automatically removes accounts in collection 6 years from the date of default.

Judgments

A judgment occurs when a creditor sues you in court and obtains an order, or judgment, from the court to confirm that you owe the debt.

• Equifax retains the notice of a judgment on your report for 6 years.
• TransUnion retains this information for 6 years from the date of judgment except in Ontario, Quebec and Newfoundland, where it remains for 7 years and 10 years for PEI.

Debt management plan

A debt management plan (DMP) is a repayment program arranged through a credit counselling agency.

• Accounts under a DMP remain on your Equifax credit report for 3 years from completion. If you did not complete your DMP, the accounts remain for 6 years from the date filed.
• TransUnion removes debts satisfied (paid) through a credit counselling agency 2 years from the date the program was completed or 6 years from the date you defaulted, whichever comes first.

Consumer proposal

A consumer proposal is a formal, legally binding debt settlement arrangement made through a Licensed Insolvency Trustee to settle debts for less than you owe.

• Equifax’s website says that a consumer proposal will be removed 3 years from completion or 6 years from the date it was filed, whichever comes first. In practice, we have seen most proposals removed 3 years from completion.
• TransUnion will remove a consumer proposal 3 years after completion, or 6 years from the date you defaulted (filed), whichever comes first.

Bankruptcy

• Equifax will remove a first-time bankruptcy 6 years after your discharge, or 7 years if you have not been discharged. A repeat bankruptcy means both bankruptcies will show for 14 years.
• TransUnion removes a bankruptcy from your report 6 years from the date of discharge except in Ontario, Quebec, Newfoundland and PEI where it is removed after 7 years. A repeat bankruptcy remains for 14 years.

How negative information affects your credit

In general, negative information will lower your credit score. The more negative information you have, the lower your credit rating.

However, not all negative activity has the same impact. In addition, the impact of any item does fade over time.

No-one knows exactly how credit scores are calculated. This information is proprietary or secret to each credit bureau. However, here is some information that is useful for you to know.

Missed or late payments have a very large impact on your credit score. The more late payments you have, and the longer you are late, the lower your score.

Not all credit inquiries will affect your credit score. You can check your credit report as often as you like, and this will not affect your score. Other soft inquiries, like a landlord or insurance company checking your report, have no credit score impact.

A bankruptcy or consumer proposal will lower your score upon filing. However, these programs are designed to help you eliminate overwhelming debt that may also be dragging down your score. Carrying high debt balances and constantly missing payments will harm your credit score. For the right person, a bankruptcy or consumer proposal can be necessary to eliminate that debt, allowing them to start fresh with the process of repairing bad credit.

It is important to understand that lenders look at more than your credit score when deciding whether to approve a loan or credit card application. They look at your entire credit history as well as additional information, including your income, how long you have lived at your current address, types of loans you already carry and how much.

What can you do to improve your credit before negative information is cleared?

You do not have to wait for negative information to age enough to be removed to start a process of rebuilding your credit.

Your first step is to get a copy of your credit report and look for both negative and incorrect information. False information on your report can also lower your credit score. An example is if a creditor incorrectly reports a late payment.

Check your report for errors and file a dispute resolution with each credit reporting company to fix any incorrect information.

Next, consider the other factors that might be affecting your credit score:

• If you are not paying your bills on time, catch up on all payments.
• If you carry high credit card balances relative to your credit limit, pay them down or talk with a Licensed Insolvency Trustee about debt relief options if you can’t do that on your own.
• If you have a lot of low-credit debt like payday loans or high-interest loans, this is something else that will be considered a negative by any potential lender. Again, talk with a trustee if you can’t pay these off.
• Don’t apply for credit too often. Too many loan applications will lower your score. If you apply at more than one lender in a very short window to shop around for better interest rates, TransUnion says their algorithm accounts for this and won’t lower your score. However, applying for two or three credit cards in a matter of weeks will certainly hurt.

Credit scores are calculated based on the information that appears on your report. When items are purged by the credit bureau, they no longer impact your score. However, the result is not like an on-off switch. Negative information has a smaller impact on the calculation of your credit score over time. One late payment five years ago will lower your score less than one recent late payment. A bankruptcy filing four years ago that still appears on your report will not have as big an impact as it originally did.

Should you pay off negative items on your report?

Making payments on overdue accounts will not remove the late payment mark on your credit report. Your account will now be current, but the original missed payment will remain for 6 years. This is better than continued late payments.

However, there are times you may not want to pay off that account.

Let’s say you have an old account in collection from 5 years ago. Legally, your creditor can no longer sue you to collect because the statute of limitations period has expired – the Ontario limitations period is two years. Also, that account will fall off your credit report in one year. Should you pay off negative items like a collection account to get them off your credit report?

Technically you owe the money, and that debt will never go away so debt collectors can keep calling. However, making a payment can restart the timeframe for when an account is removed from your credit report. If you decide to pay off the old account, ask the debt collector to remove the negative item from your credit report as part of any payment or settlement offer with the collection agency.

Negative history vs. too much debt

As I mentioned, negative payment history will lower your credit score, but so will carrying high balances relative to your credit limit. If you cannot repay your debts as they come due, it may be time to talk with a Licensed Insolvency Trustee to help you eliminate debt so you can work to build a better credit report for future lenders to see.

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What is credit history?

Your credit history is a record of your past and current borrowing activities, including what types of credit accounts you’ve opened, how much you borrowed and your payment history.

Not all your credit history will appear on your credit report. But what does appear has a significant impact on your ability to borrow in the future and the interest rate you will pay.

Your credit history is used by lenders to assess your creditworthiness, decide whether to give you more credit and what interest rate to charge. Landlords look at your credit history to see if you’ll be a good paying tenant. Employers may look at your credit report to fact check your personal information and to see if there is reason to worry about the potential for fraud or theft based on your financial history.

But I think, more importantly, you should look at your credit history as a good barometer of how well you manage your money.

Your credit history is also a timeline. Newer activity has a greater impact on your credit score than old history. This is good if you currently have bad credit or want to rebuild after a bankruptcy or consumer proposal.  Filing a bankruptcy or proposal is like drawing a line in the sand. You get a do-over. Your past poor credit habits can fade away as you build a new, better history.

How does your history get on your credit report?

Before a lender is willing to give you money, they check your credit report. Credit reports are a way for lenders to share information amongst one another about how you managed credit in the past. Obviously, this is useful to them. If someone asked to borrow your car, wouldn’t you want to get to know them a bit so you might have a feel for responsible they are? That the initial reasoning behind credit reports.

Canada’s two credit bureaus – Equifax and TransUnion – get information for your credit file from your lenders, and this is where a lot of problems can arise. Not all creditors report to credit bureaus. Some creditors report to both credit reporting agencies; some only report to one, and some don’t report at all. And creditors can make errors, or just be plain stubborn about how they convey information.

Public record information, like a bankruptcy, consumer proposal, judgement or lien, is provided from data available through various local, provincial and federal government records. In the case of a bankruptcy or consumer proposal, it is the Office of the Superintendent of Bankruptcy that updates each reporting agency on the date of filing, type of insolvency proceeding, and discharge or completion date.

Regardless of where the credit bureau gets its information, it’s up to you to check your credit report regularly to ensure this information is correct. It is best to do this with a free credit report available through the credit bureaus rather than one you get through credit monitoring program with your financial institution or lender. Free monitoring services do not show the same information as your lender will see from TransUnion or Equifax.

How does your credit history affect your credit score?

Your credit history is not your credit score, that 3 digit-number everyone loves to chase. I’m not a fan of focusing on credit scores.  Worrying about your credit score is like focusing on the number of baskets shot by the top player on the team, yet not focusing on the fact that the team is losing. You could have a good credit score yet still be doing a lousy job managing your money and debt.

According to Equifax, your credit score is calculated based on five factors from your credit history:

• Payments history – 35%
• Credit utilization – 30%
• Length of credit – 15%
• Public records – 10%
• Inquiries – 10%

Payment history has the largest impact on a credit score. If you have a late payment, you can expect a dramatic and immediate drop in your score. The higher your score, the bigger the drop. One late payment, if you have a score of 600, may lower that score 10 to 15 points; if you are at 800, it may fall by 30 points or more.

Overall, the longer you’ve had credit, the better your credit history and the better your credit score. But, even if you’ve had credit for over ten years, if you owe a significant amount of debt, or don’t handle that debt well, you’ll can still have a low credit score.

Maxing out revolving loans like credit cards and lines of credit is very bad for your credit score. Using too much of your credit and maxing out your credit card or lines of credit has an impact almost as bad as a late payment.

That’s why managing your money is really the best thing you can focus on when you want to manage your credit history. Setting priorities, making a budget and tracking expenses, and having a plan means avoiding credit mistakes that can damage your credit report.

How long does your credit history follow you?

What if you’ve had your credit cards for a long time and made some mistakes when you were younger. Will those mistakes show up on your current credit report? It depends.

For the most part, negative history stays on your credit report for seven years. But the duration can be shorter or longer, depending on your behaviour.

The good news is your positive history will show up indefinitely, starting from your very first line of credit. Positive information includes:

• Length of loan (the longer, the better)
• Type of loan (the more diverse your credit lines the better)
• Repayment history (on time)
• Amount of line or amount of credit line (low utilization)

As long as this information is positive, it will continue to keep your credit score high.

So what about a bankruptcy or consumer proposal? People I talk to are very concerned about the impact of bankruptcy on their credit or how long a consumer proposal remains on their report. 

While I understand that concern, getting rid of a heavy debt load is often the first step to building a new and better credit history. It’s better to ask yourself a few questions about your credit capacity:

• Am I able to borrow enough now to pay off my debts, at a good interest rate?
• Can I afford my current payments and get out of the debt I have?

Yes, filing a bankruptcy or consumer proposal will appear in the public record section of your credit report and can drop your score in the short term by 100 points or more. However, your score will improve if you take the right steps to rebuild your credit history, despite this initial big hit.

How to manage your credit history

Credit history is the big picture: how well you manage the credit you have. If you have a bad history, it’s time to turn the page and refresh that with a new one. Even a bankruptcy or proposal can be considered the start of a do-over.

New history is more important than old history when applying for credit. This is good news if you are working to repair or rebuild the damage caused by bad credit history.

If your past credit history is not the best, there are things you can do to improve your credit history.

1. Get a copy of your credit report and fix any errors.
2. If you have a lot of debt, reduce your credit utilization by paying down balances. Less outstanding debt is better for both your credit score and your budget.
3. Don’t take on more debt than you can afford to pay. It doesn’t matter how much credit the bank will give you, only borrow what you can afford to pay down. Accepting credit limit increases can lower your utilization rate, but only if you are not tempted to use that new limit for spending.
4. Pay your bills on time, so you avoid further negative marks.
5. Keep your borrowing balance at less than 50% of your available credit at all times, even mid-month. If you want to use your credit card for all your purchases to earn points, make multiple micro-payments throughout the month to keep the balance low.
6. If you are new to credit or are restarting after a consumer proposal, slowly establish new credit lines. You can start with a secured credit card or low balance unsecured credit card.
7. Be aware that high-risk credit like payday loans, credit repair loans and financing company loans on your credit report may not look good to a mortgage or traditional lender.

Apply for credit wisely, don’t run up your balances, keep your new accounts in good standing, and you will have a good credit history. If you’ve made mistakes in the past, think of the process as rebuilding your reputation. Forget the past and work to show you’ve changed. If you have really bad credit, the process takes time, but it’s certainly doable.

The post What is Meant by Credit History and How Do You Influence It? appeared first on Hoyes, Michalos & Associates Inc..

With so many free report providers, how do you know which one is accurate? My guest today stresses it’s important to first understand what’s actually on your credit report. Then you can take action to deal with any errors and omissions.

What’s on your credit report?

Meg Penstone is a certified credit counsellor at Hoyes Michalos and has over 20 years of experience helping people with financial difficulty. She’s also an expert on credit reports.

According to Meg, there are four sections in a credit report:

1. Personal Information: This contains things like your name, address, date of birth, employment status, current employment status, and past employment status.
2. Trade Lines: Creditor trade lines are the accounts you have with your lenders and each individual lender reports to the two official credit bureaus: Equifax and TransUnion. These trade lines include the name of the lender, the type of account (credit card, mortgage, installment loan etc.), the date the account was opened, what your credit limit is, your current account balance, and payment history (are you up-to-date, have you fallen behind, etc.).
3. Inquiry Information: This information is about who has been looking at your credit bureau report. There are two types of inquiries that can be made – a soft inquiry and a hard inquiry. A soft inquiry doesn’t impact your credit score or your ability to borrow. If you check your credit bureau report it’s considered a soft hit. Current creditors just checking in on you or account monitoring are also a soft inquiry and do not affect your credit score. A hard hit is different. A hard inquiry on your credit report happens when you apply for credit and the lender checks your credit report. Notices of hard inquiries can remain on your credit report for up to 36 months and too many hard hits can impact your credit score and ability to borrow.
4. Public Records and Collections Information: In this section, you would see legal activity like bankruptcies, consumer proposals, judgments (if you’ve been sued and someone has gotten a judgment against you), past due accounts that have been turned over to collection agencies. For example, if you owe a significant amount of tax debt to the Canada Revenue Agency, they can obtain a judgement against you, which would appear in this section of your credit report. A CRA judgement due to taxes owed may also impact your credit score. Further, this section of the report also has very normal activity like a lien. Meg elaborates:

   If you go and get a car loan it’s very normal for the lender to register a lien against your car. So if you don’t make payments they have the right to repossess the vehicle if you’re in default. So liens are very normal.

Make sure your credit report is accurate

It’s very important that all of your information in these sections is correct. Any errors on your credit report can affect your ability to get a loan.

There are only two credit bureaus in Canada: Equifax and TransUnion. Lenders report your activity only to them, so if you want the most up-to-date information you should get a free copy of both reports.

Equifax and TransUnion are registered with the government of Ontario and are legislated under the consumer reporting act. This act requires these bureaus to do an investigation in a timely manner to get any reporting errors resolved, if you provide them with evidence.

If you find an error in your credit report (for example: your consumer proposal is being reported as a bankruptcy) you have the right to file a correction. You can make a correction using their correction/dispute resolution form. Indicate what the error is and provide evidence, like a copy of your certificate of full performance if you filed a consumer proposal rather than a bankruptcy.

Credit reporting issues with companies offering free credit scores

As mentioned earlier, there are many loan companies like Borrowell, Mogo, and Credit Karma that offer free credit scores and reports. While these can be tempting to use, the reports you receive are usually inaccurate. They typically only present a summary of the information and sometimes it’s out of date or inaccurate. And you also can’t get a correction filed through them.

Since these companies are not registered like Equifax and TransUnion, they’re not obligated to provide you with accurate information or to make corrections to their reports. If you find an error on a report by one of these providers, double check your official credit history with Equifax and TransUnion to see if the error is still there. If it is, contact Equifax and/or TransUnion to fix the issue.

How can I ensure a lender always has accurate information about my credit history?

To avoid any issues with your credit report when you are applying for a loan, Meg suggests being proactive. Get a copy of your credit bureau report from Equifax or TransUnion and take a look at all of your information. If there are any errors, allow yourself 2-3 months to have them corrected. It could take some time for the agencies to verify the the evidence you’ve submitted, so make sure you have allowed yourself plenty of time to have an accurate credit report, before applying for a loan at the bank.

Resources Mentioned in the Show

• Equifax: What Information is on a credit report
• The True Cost of Debt with Meg Penstone
• Mogo Loans: Are They A Good Deal?
• Free Credit Scores Come with a Catch
• Free Credit Score with RBC
• Free Credit Score with ScotiaBank

FULL TRANSCRIPT – Show 194 What Information Is On Your Credit Report?

Doug:                It’s fairly easy to get a free copy of your credit report today. Both TransUnion and Equifax will provide you with one free copy a year and you can even apply online. Some financial institutions will also provide you with a free copy of your credit report and there’s a bunch of other services that will also offer a free credit reports. We’re going to talk about those. The problem is many people get these reports but don’t always know what they’re looking at. To make things worse your TransUnion and Equifax report may not even have the same content.

So, today to help demystify credit reports we’re going to cover the basics about credit reporting, including what is a credit report, what’s on your credit report, where does the information come from, how can I get a copy of my credit report, how do I correct errors on my credit report? And then with that background we’ll get to the key question what about all these companies that are offering free credit reports? Are they legit?

We’ve got lots to talk about today so to help me out I’m joined by one of our Hoyes Michalos credit report experts, Meg Penstone. Meg, welcome to the show.

Meg:                 Thanks Doug, happy to be here.

Doug:                Meg was a guest way back on show number 74 and this is show number 194 so that was exactly two years ago in January of 2016. Well, I guess it couldn’t have been two years ago we’re almost into the summer here, where we discussed the true cost of debt. At that time, Meg was the manager of financial health and literacy for family counselling and support services in Guelph.

In September of 2016 Meg joined the team here at Hoyes Michalos and since then she’s worked closely with me to improve how we help our clients through credit counselling and she’s also done a lot of work with our clients helping them understand their credit reports. So, Meg let’s start with the obvious question what is a credit report?

Meg:                 It’s a bit like report card Doug. It’s a document that has information about you, your credit activity and your current financial situation, your current credit situation.

Doug:                Okay, so let’s kind of break this down into pieces. So when I think of it there’s kind of like four main sections, I guess you could interpret that differently perhaps but, you know, I’ll put links in the show notes to a credit report so you can see what it looks like. But let’s go through the sections. So I call the first section, you know, identifying information, what do you call it?

Meg:                 I call it personal information but it’s the same thing.

Doug:                Okay, so we all have our own little words for everything here, so what’s in this personal information section?

Meg:                 So personal information contains things like your name, your address, your date of birth, your employment status, your current employment status and your past employment status.

Doug:                So obviously you want this to be accurate, why is it important that it’s accurate?

Meg:                 Well you absolutely want it to be accurate because if you they have your name incorrectly misspelled they might misidentify you or if your employment information is wrong then that could impact your ability to borrow.

Doug:                So you want to have that information correct okay. So I call the second section trade lines, what do you call it?

Meg:                 I call it trade lines too so we’re all on the same page.

Doug:                So, what exactly is a trade line then?

Meg:                 So, creditor trade lines are the accounts that you have with your lenders and each individual lender reports to your credit bureaus. Equifax and TransUnion are not giving you your scores, they’re just organizing the information. So when a creditor trade line, you’ll have things like the name of the lender, the type of account is a credit card which might be coded as an R, a mortgage or an instalment loan like your car loan would be. It’ll talk about the date that the account was opened, what your credit limit is, your current account balance and your payment history. Are you up to date, have you fallen behind, do you make payments late?

Doug:                And this is important because again the lenders use it in making lending decisions I guess.

Meg:                 Absolutely that’s right.

Doug:                Well and things like the date the account was opened, one of the factors that factors into your credit score is how long you’ve had an account. So if something’s been open longer then you want to make sure that that information’s correct obviously because that could potentially help you.

Okay, so the third section, well I think of it as the inquiry information section, I don’t know if it’s actually a separate section on the credit report or not but what’s in that section?

Meg:                 That’s information about who’s been looking at your credit bureau report.

Doug:                And okay now I know because I’ve been doing this awhile that there’s hard hits and soft hits or hard inquiries and soft inquiries and they have a different impact on you. Walk us through, you know, what’s a soft hit, what’s a hard hit?

Meg:                 Sure. So a soft inquiry doesn’t impact your credit score or your ability to borrow. So, when you want to check your credit bureau report it’s considered a soft hit, it’s not going to impact anything. Current creditors just checking in on you or account monitoring, again a soft hit’s not going to impact you. Inquiries made by companies extending you preapproved credit for a credit card again that would be considered a soft hit.

A hard hit is different. That’s when you apply for credit and the lender checks your credit report. That can remain on your credit report for up to 36 months and too many hard hits can impact your credit score and ability to borrow. Some people may interpret that you’re a credit seeker, trying to max out credit or that you may be having some difficulty and really needing to get some credit quickly.

Doug:                Well and particularly if you’re applying for credit and being turned down then that’s really going to have a negative impact. So, yeah and with soft hits I remember talking to someone from one of the big banks a few years ago and he told me yeah, we do a soft hit on every one of our clients and they’ve got I don’t know two, three million clients, every three months. So, we go in, we just check, has anything radically changed? And if all of a sudden you went from having one credit card with us and now you’ve got five credit cards with a bunch of other people then even though you’re still up to date and making your payments and everything’s great, maybe we need to, you know, raise your interest rate, reduce your credit limit or whatever.

So soft inquires do have an impact with the bank you’re with but you’re right they don’t factor in your credit score because it’s not something – you’re not applying for credit and therefore it’s not part of the credit score information.

So, okay the final category I mean I call it public records and collections information, I guess you could also call it legal information or something like that, what do we normally see in that section?

Meg:                 So that’s things like bankruptcies or consumer proposals, judgments, so if you’ve been sued and someone has gotten judgment against you that would be in the public record section, past due accounts that have been turned over to collection agencies are in that section. And there’s very normal things like liens so if you go and get a car loan it’s very normal for the lender to register a lien against your car. So if you don’t make payments they have the right to repossess the vehicle if you’re in default. So liens are very normal.

Doug:                Yeah there’s nothing wrong with a lien. It sounds like a bad thing but you’re not getting a car loan unless they register a lien against your car.

Meg:                 Absolutely, completely normal.

Doug:                It’s pretty much that simple. So it’s in the legal section, that doesn’t necessarily mean it’s something bad. So, okay we know there’s two main credit bureaus in Canada.

Meg:                 Yep, those are Equifax and TransUnion.

Doug:                And you already made the comment. I forget how you said it. They are the assemblers of information or something like that.

Meg:                 That’s right.

Doug:                Am I quoting you accurately? We can play back the tape and see, close enough. So where are they getting this information that they’re assembling then?

Meg:                 Okay, so they get the information from your lenders. The banks will send them data or the credit bureaus, credit unions, sorry, or any other lender. Rogers may send that information over to them and then they organize the information. They receive it and organize it.

Doug:                So, I mean there’s a key point there and this is something we talk to our clients about all the time, we don’t actually provide information to the credit bureau. So when someone comes into Hoyes Michalos and files a bankruptcy or a consumer proposal, that legal process, that legal proceeding is filed with the Office of the Superintendent of Bankruptcy, it, you know, may get into the court system if needed.

It is the Office of the Superintendent of Bankruptcy, which is the federal government, that then reports the fact that you filed a proposal to the credit bureaus. And then when your proposal is done or your bankruptcy is discharged we then report back to the Office of the Superintendent of Bankruptcy saying hey, good you’re done. Here’s the date of discharge and it is they that then report to the credit bureaus.

So, we don’t have a direct pipeline to them, which is why and we’ll talk a bit about you know, what do you do when you’ve got errors, it is the credit bureau themselves who ha to be at the frontlines of making any corrections and that. So okay, I want to know if there are any errors or any other problems on my credit report, how do I get a copy of it?

Meg:                 So, the very first thing you do is as you said you get a copy of your credit bureau reports, we always recommend that you get a copy from both Equifax and TransUnion because lenders may report differently on either one of them. You can do it in a variety of ways, you can get it by mail. You can get it by phone, you can get it in person or you can get it online. Sometimes the banks are even helping clients get information on their credit scores and credit bureaus now.

Doug:                As far as I know there’s two banks, Bank of Nova Scotia and Royal Bank who if you’re a customer of theirs, a client of theirs, through your online banking you can actually get it. So that was a commercial for those two banks, I guess they should pay us for mentioning that. I believe that there is another bank that does offer something similar but they’re doing it through one of these secondary agencies which we’ll talk about in a minute. So I’ll put links in the show notes to how all that works.

I mean in your experience what is the success rate of getting these? I mean by mail I assume it’s pretty simple, I print out the form, I, you know, I photocopy my ID so they know who I am, I mail it in, 10 days later it shows up in my mailbox. What – and doing it in person well there’s only a couple of places in Ontario, you’ve got to go to Toronto or Burlington or wherever the locations are. So that’s not a, you know, an obvious thing for most people to do. Doing it online or by phone does it work 100% of the time?

Meg:                 Not 100% of the time.

Doug:                So what are the glitches?

Meg:                 Sometimes the glitches may be your address doesn’t match up with the address they have or your employment status doesn’t match up or I can’t actually get mine. I’ve tried to get mine online I had a fraud alert put on mine a couple of years ago so I’m not sure if that was impacted my ability to get it online for free.

Doug:                Or you’ve got a funny spelling of a name.

Meg:                 Exactly, something doesn’t match.

Doug:                Or your address has, you know, got a suite number or something, who knows? And in fact I wasn’t able to get mine online either because I don’t know why, who knows? And again let’s be very specific here when we’re talking about getting it online, we are not talking about paying to get it online.

Meg:                 That’s right.

Doug:                You can go through, and I don’t know if you can do it with both Equifax and TransUnion, certainly with TransUnion you can. You log in, you put in all the information, you name whatever, and then it’s going to ask you some verifying questions. What would be an example of a verifying question that it would ask you?

Meg:                 It might ask you where you lived 10 years ago.

Doug:                So it’ll actually – it’s a multiple choice thing, it’ll give you three different addresses and say did you ever live here?

Meg:                 Right and you have to pick one.

Doug:                Or have you ever – do you have a credit card with this bank and it’ll list three banks.

Meg:                 That’s right.

Doug:                And in most cases I’ve seen the answers are pretty obvious. Like it’s okay I’ve never lived in Winnipeg so that can’t be right kind of a thing. And it may be as part of that verification process that it gets gummed up that obviously if you give the wrong answer it won’t. So, both credit bureaus, Equifax and TransUnion, will also offer to sell you your credit report and sell you your credit score.

Meg:                 That’s right.

Doug:                And they cost $20 or whatever. My attitude is well if you can get it for free why would you pay for it?

Meg:                 That’s right. You have the right to your credit bureau files once a year for free.

Doug:                And the credit report does not include your credit score, so if you want your credit score then you’ve got use one of these other means like through your bank or actually paying for it. But your credit report is what we’re talking about today and, you know, the reasons that it’s necessary.

Okay, so that’s kind of the background that explains the big picture on it. So let’s get to the important question here, I mean you’re one of our credit report experts here at Hoyes Michalos you know, you probably talk to I don’t know a dozen or more clients every week who have questions about their credit report. Some of these people get their credit report from Equifax or TransUnion just like we talked about but a lot of them get it from these free credit monitoring services. So there’s places like Credit Karma and MOGO and Borrowell that offer free credit reports. So you I mean you see a lot of these things, right?

Meg:                 Yes.

Doug:                Clients bring them in all the time. So, you know, what’s your opinion of them.

Meg:                 So, in my experience they only present a summary of the information and sometimes it’s out of date or inaccurate. And you also can’t get a correction filed through them. So, I much prefer to go direct to Equifax and TransUnion. That’s where your banks are going to check so you want to go to the source; you want to go to where your banks are going to.

Doug:                Makes sense. So what do you mean summary information?

Meg:                 So summary information are things like they may call a consumer proposal a bankruptcy.

Doug:                That’s a problem.

Meg:                 Yep. A consumer proposal falls under the bankruptcy and insolvency act but it is not a bankruptcy it is different than a bankruptcy but they lump it in as a bankruptcy.

Doug:                Yeah, a motorcycle and a semi truck are both motor vehicles but they’re not actually the same thing. And I know that that is a huge frustration with our clients.

Meg:                 Absolutely.

Doug:                Because they come in here, they do a consumer proposal, everybody accepts it, they make all the payments, it’s great. You know, they’re really happy and then two years later the proposal’s all paid off and they’re going apply for a car loan and they go into the car dealer and the car dealer’s oh, sorry we can’t give you this because you’re bankrupt. And they’re going well, number one I’m not bankrupt my thing’s done and number two I didn’t go bankrupt, I did a consumer proposal. And so I assume that’s just because again like they’re presenting summary information.

Meg:                 Right. And sometimes at the lender level they’re looking at the Equifax and TransUnion, which has the correct information versus the summary information. So it’s more when the client goes online to their MOGO or their Credit Karma account and then they get concerned that it hasn’t been recorded correctly. But when we actually pull the Equifax and TransUnion files we see that it’s accurate. Public records generally tend to be accurate, it’s more along the creditor trade lines that we see problems.

Doug:                Okay, so you just hit on the key point there, creditor trade lines. So, if you pull your credit card from Equifax or TransUnion you look at that last section, legal information, public information, public records whatever it will say filed a consumer proposal with Hoyes Michalos on this date, you know, proposal fully performed on this date. But if I go up to the trade lines section and I read, you know, I had a TD Visa, I’m just giving you a hypothetical example here of a bank, and it may say, well you tell me, what would it say?

Meg:                 Yeah sometimes we see the TD accounts marking it as included in the bankruptcy rather than included in the consumer proposal but you as the consumer have the right to correct that.

Doug:                Have you ever seen TD do it correctly? Ah ha and in my experience and, you know, I hope TD is listening and calls me up and tells me I’m wrong, but in my experience they have one button on their computer when they’re registering a proposal or a bankruptcy and it’s the bankruptcy button. So whether you’ve done a proposal or a bankruptcy that’s what it shows. And I’ve actually talked to people at TD, I haven’t in the last year or two because I got frustrated with it, but I talked to them and they said oh yeah, unfortunately our system’s not very sophisticated, you know, we’re still using DOS or something, I don’t know. And as a result we don’t have the ability to distinguish.

And I said oh that’s really interesting so you’re producing false information, you know it’s false, you know it’s impacting the people who are attempting to borrow money and you don’t care. Well, you know, we’re a big organization, blah, blah, blah, blah.

So, what I tell people, and again tell me if this is good advice or not, okay so you’re sitting there and they think you’ve gone bankrupt and you haven’t. Get your actual real credit report from Equifax or TransUnion and read right down the bottom section because it will be correct there. It’s very rare –

Meg:                 That’s right, it’s very rare that public records is wrong and sometimes the lenders don’t know how to read a credit bureau report, they may be new to the job.

Doug:                Only been there 20 years so they don’t know what they’re doing, yeah.

Meg:                 So you can point them to the public record’s side, but even before that Doug I would suggest to people that before you go into the lender’s office because that can be worrisome when you sit there and find out that there’s a problem with your credit bureau report, pull them. You get them for free once a year, pull your Equifax and TransUnion. You have the right to file a correction if the information is wrong.

Doug:                Okay, so why don’t we go right to that then. So how do I do that then? How do I – I find something that’s obviously wrong. Okay, so again in my hypothetical example where this bank who’s initials are TD has recorded my consumer proposal as a bankruptcy, what do I do?

Meg:                 Yep. So normally when you get your credit bureau file in at the very back of it there will be something called a correction form or they may call it a dispute resolution form. And you mark, it’s actually quite simple, let’s say it’s TD because you like TD.

Doug:                Hypothetical example.

Meg:                 Hypothetical, yeah. You would mark in this was a consumer proposal not a bankruptcy and then you provide some evidence. So we always give our clients their certificate of filing, we give them their discharge papers and we give them a copy of their creditor’s package so it’s very clear that it was a consumer proposal not a bankruptcy. They put that in, they give their ID, they sign it, away it goes and then the Equifax and TransUnion go ahead and do an investigation, get it corrected for you.

Doug:                And so you got to be proactive.

Meg:                 Absolutely.

Doug:                That’s the bottom line. So okay, so we’ve talked about that, are there any other differences other than producing summary information? And again I’m talking specifically about these free places, you know, the Credit Karma’s of the world, is there anything else you see different?

Meg:                 Well, I think the big difference is that Equifax and TransUnion are registered with the government of Ontario. They are legislated under the consumer reporting act so some of these other free services may not be registered. Why does that matter? Well the act requires certain important things get done. So, if you think there’s something inaccurate about your credit bureau file or it’s incomplete, the act says that in a timely manner, Equifax and TransUnion need to do an investigation if you provide them with some evidence. So they’re not just doing you a favour. They’re not just being good corporate citizens. There’s actually some legislation around that, so there’s teeth.

Doug:                Are you saying that Equifax is not a good corporate citizen Meg? Are you saying that they’ve had issues in the past with data hacks and other things and what are you saying here?

Meg:                 I say none of that.

Doug:                If Equifax is listening, Meg Penstone, spelled with an e you could certainly contact her and do whatever you need to do. Okay so what you’re saying quite obviously is go directly to the source for the most accurate and up to date information.

Meg:                 Correct.

Doug:                And obviously don’t be releasing your private information to anybody else. And I think I mean this is kind of a very key point here and that is that nothing is free. Back on show 113, which was in October of 2016, my guest was Kerry K Taylor, the author of the Squawk Fox blog and we talked about MOGO, a lender that will give you a free credit score. And I’ve also written about Borrowell, another lender that will give you free access to your Equifax credit score.

I’ll put links to both of those items in the show notes but let me make that point again, there’s no free lunch. So, MOGO or Borrowell or Credit Karma has to pay Equifax or TransUnion for access to your credit report and your credit score. They don’t get it for free. So how can they pay for something and then give it away for free? Well, I know the answer to my own question. They know that your credit report is a lost litre. The give it to you for free because they know they can make money off of you in the future. So as Kerry said back on that podcast getting you to sign up for a free credit report helps MOGO because once you’re in the system they now have access to all of your data. Why does that matter? Well, because the more data MOGO can collect on you, the more they can tailor the marketing pitch to you.

So think about it, the free credit place now has all of your information, your name, your address and your full credit history. They know your credit score. So now that they know everything about you they can send you a very specific marketing pitch. So if you have good credit you’ll get an email offering you a low interest credit card or mortgage. If you have okay credit well maybe they’ll offer you a higher interest credit card or loan. And if you have a not so great credit well maybe they’ll offer you a payday loan at a higher interest rate or perhaps some credit repair services that you have to pay for. They’re offering you a free credit report to get the data so that they can sell you something. Now maybe you’re fine with that, maybe you want to get loan offers by email. You don’t have to take them, you can say no. But in my experience, they get you at a weak moment and you sign up for a small loan and over a time you graduate to a larger or more expensive loan that you may not need and maybe at higher interest rates than what are charged by the big banks. I get it. These guys are saying they will help you improve your credit score, and maybe that’s true, but they’re also helping you get into more debt, which is how they make money.

So okay Meg, that was my, you know, long soliloquy, my long little rant. You know, am I off base here, am I worried about nothing? Or have you seen people who get sucked in with an offer of a free credit report and, you know, they end up worse in the long run?

Meg:                 Doug, you and I have had a lot of conversations about this. I’ve bent your ear several times. My concern is I think we have not a very good job educating the general public when it comes to how the debt system works in Canada. In my experience, very few people realize that a creditor can charge you up to 60% interest annually according to our criminal code. And beyond that there’s actually some exemptions from the criminal code for those short term lenders such as the payday lenders. So when you actually annualize how much interest they’re allowed to charge you it’s in the hundreds of percents.

So when these leads are generated for people that are maybe struggling or in a poor financial situation, they may end up borrowing from these high rate lenders and getting themselves into a more difficult debt situation. So I always worry about the education piece. I think we need to be communicating much better about this.

Doug:                Well and that’s why I’ve got you on the podcast you see and frankly that’s one of the reasons why I brought, you know, you into the fold here and some other people with credit counselling backgrounds because yeah, we’ve got to be explaining this. You get the sales pitch, which is only one side of it, not both sides of it.

Okay, let’s finish off with some practical advice. You and I both got to have our rants there so we feel better. I agree with you, payday loans are not a good thing. But let’s give some actual, practical tips then, so for people who are listening. When you’re having a in person credit counselling session, which is how all of them are done here at Hoyes Michalos, what are the kind of tips you’re giving people?

Meg:                 First is go and get a copy of your credit bureau report and take a look at it. It’s actually quite interesting. And you want to do that well before you plan to get credit again.

Doug:                And that’s a key point. Because if you’re going to mail it away it’s going to take 10 days to get there.

Meg:                 At least, yeah.

Doug:                And if the mortgage deal is supposed to close tomorrow and there’s problems on it, you don’t know. So what kind of timeline would you be looking at? So let’s say, you know, I’m thinking of getting a car at some point in the next year. How far in advance do I need to get my credit report to give me time to clean up any mistakes if there’s any on there?

Meg:                 I’d say a couple of months.

Doug:                A couple of months, okay. So get your credit report, let’s say that takes 10 days. I mean if you manage to get it online or through your bank then it takes 10 seconds. But let’s assume you’re doing it the old fashioned way, you mail it off, it takes a bit of time to get it. There’s some errors, you’ve got to provide the proof, send it back in, so two months, two months before.

Meg:                 Maybe even two or three months because they’ll have to do an investigation so you’re not in control of how quickly that investigation gets done. So you may even want to be safe and back date it a little longer.

Doug:                Okay, so don’t leave it till the last minutes that’s tip number one. What’s tip number two?

Meg:                 Make sure you check both the credit bureaus. Some people assume that what’s on Equifax is what’s going to be on TransUnion, that’s not true. They may actually report differently and I’ve seen that happen a lot. So get them both and get them from the source, TransUnion and Equifax.

Doug:                Now you mentioned earlier that by law they have to give me a copy of my credit report once a year.

Meg:                 Yep, yes.

Doug:                My understanding is if you go online, like TransUnion for example, and type in your information and get it, it’s actually possible to get it more frequently than once a year because it doesn’t seem like they have any kind of check on it. I’ve talked to people who have said oh yeah, I got it again three months later. Because I guess there’s no human being involved it doesn’t really cost them anything.

I’ve always told people on an ongoing basis, so let’s say you’re – okay, I’m getting a loan three or four months from now so I’m going to get both of them, makes sense because one might have an error that the other doesn’t have on it. But let’s say, you know, I’m up and running, things are good, I just want to keep an eye on things. I tell people well, get your Equifax one today, wait six months and get TransUnion and wait six months and get Equifax. And that way you’re getting a credit report every six months but because you’re getting them through different credit bureaus you’re really only getting them once a year from each individual one. Does that makes sense on an ongoing basis?

Meg:                 That makes a lot of sense, yeah.

Doug:                There you go, so there’s my free tip of the day. Okay, so we talked about, you know, doing it in advance, getting them directly from the source. Now we mentioned this already but the whole dispute resolution process. So summarize what you had already – what we kind of already hit on there.

Meg:                 Sure. If there’s errors on your credit bureau report you have the right to correct them. Now if you have accurate information let’s say you missed a couple of payments and that’s noted on your credit bureau report. You can’t dispute information that’s correct but you certainly have the right to dispute inaccurate information.

Doug:                So if it’s inaccurate get it corrected, you know?

Meg:                 Yeah.

Doug:                Pull the paperwork together, send it off and get it done. Okay so that makes sense. Give me another tip.

Meg:                 Again some lenders may not know how to read your credit report correctly so the more familiar you can be with the different sections you can point them in the right direction if there’s some.

Doug:                Yeah and the obvious error we already talked about was the individual creditor says oh, debt was included in bankruptcy but if you read down to the bottom it’s pretty obvious that you filed a consumer proposal. That’s the kind of obvious error that you’re talking about.

Meg:                 Yep, exactly.

Doug:                Okay. And so having your actual credit report when you’re sitting there at the car dealership you can say no, no take a look you’re just looking at summary information, here’s the full thing. Okay, so give me your final tip.

Meg:                 So the final tip is we put a lot of weight on your credit bureau reports but creditors look at other things as well and sometimes that’s forgotten. And I like to call those factors the three Cs. So that’s character, capacity, collateral. Character is things like your credit bureau file but it’s also other information like the type of job you have, how long have you been employed for? Do they consider you a stable or do you move around a lot? If you move around a lot a creditor might be concerned that if you start to miss payments you’ll be hard to find.

Capacity is your ability to pay so what’s your income, how many people are reliant on that income? How much debt are you currently carrying, how close are you to your limits and how much debt do you actually have access to? So if you have five open credit cards and you’re applying for a mortgage, the mortgage broker or mortgage lender may actually assume that you’ve maxed out all those cards. And the final ones’ collateral. What sort of security can you provide against the loan? So, if you have a nice big down payment against your house, the lenders feel a lot more protected in that situation because they know they’ll always be able to get their money out of it versus someone with just a small deposit.

Doug:                Well and you’re raising a much bigger point and that is that your credit score itself is not the be all and the end all. There’s a whole bunch more to it. So I think what I’m going to do next week is I’m going to pull Ted Michalos in here and get him to give us his comments on that exact topic because I think that’s a key point.

So, since we’re bumping up against the clock here I think that’s a great place to end it. Meg, thanks for being here today.

Meg:                 Thanks again for inviting me Doug.

Doug:                Excellent, thank you. Well, let me make one final comment here and I agree with Meg that your credit score is only one factor in whether or not you can borrow and in fact I take it one step further with people I talk to and I emphasize the fact that credit scores are for the benefit of the lender not you. I mean frankly you could consider credit scores to be a scam. I discuss the credit score scam in my book, Straight Talk on Your Money, starting on page 48, available at bookstores across Canada now and online. And there’s a kindle or kobo e book and there’s an audio version on audible but I’m digressing here.

My point is that your credit report and your credit score is a tool that allows a lender to decide how much money they should lend you. It’s a tool for them to decide how far they can put you in debt. It’s not for your benefit. It’s for their benefit. So don’t obsess over your credit report or your credit score. If you’re going to be borrowing money, as Meg said, get a copy of your credit report directly from Equifax and TransUnion, review it and correct any errors. And don’t fall for the free credit report marketing pitch.

That’s our show for today. Full show notes, including a full transcript and lots of links to everything we talked about today can be found on hoyes.com. Next week as I said, we’re going to continue on with this theme of credit and we’re going to answer the question can a bad credit score actually be good for you? We’re going to pick up on a lot of themes that Meg I talked about today. And, you know, spoiler alert yes it can. So you’ll want to tune in for that next week.

I release a new show every Saturday morning and you can subscribe for free on iTunes or wherever you get your podcast. So until next week, I’m Doug Hoyes, thanks for listening and that was Debt Free in 30.

The post What Information Is On Your Credit Report? appeared first on Hoyes, Michalos & Associates Inc..

Why is it necessary to get a copy of your credit report?

Lending institutions such as banks use the information on your credit report to determine if you qualify for loans and at what interest rate. Inaccurate information can affect your ability to obtain credit or the interest rate that you are charged. Checking your credit report can also alert you to any identity theft that has taken place.

In Canada, there are two credit reporting agencies: Equifax and TransUnion. They each allow you to get one free credit report by mail every year. To ensure that the information is accurate, we recommend you alternate between the two agencies every six months. For instance, if you get your free Equifax credit report every January, get your free TransUnion credit report in every June.

Here is some information on how to get a free copy of your credit report directly from the credit bureaus.

How do Equifax and TransUnion obtain their information?

There are 2 credit reporting agencies in Canada: Equifax and TransUnion. Lenders submit information to each credit bureau with details regarding the debts you owe.  Credit reporting companies like Borrrowell, Mogo or Credit Karma get their information from either Equifax or TransUnion. Experian is a US credit reporting agency and does not operate in Canada.

Credit reporting includes the debtor’s contact information, the balance on the account, and payment history, including any late payments. Mistakes can occur when lenders send incorrect information or on data entry.

No two credit reports will be the same. Lenders choose who to report to. Some report to one reporting agency, some both, some none.

If you have filed a consumer proposal or bankruptcy, the Office of the Superintendent of Bankruptcy will send the credit bureaus the date you filed, the name of your licensed insolvency trustee, and if you have been discharged. Your trustee does not and cannot provide your bankruptcy or consumer proposal information to Equifax and TransUnion.

What types of credit reporting errors are most common?

Your credit report is broken into four sections:

• Personal information
• Credit account and banking information
• Public records
• Credit inquires

Look at each of these sections separately for areas where your credit report may be wrong.

In the personal information, watch for incorrect spellings of your name and any wrong address, employment history, birth date, social insurance number etc. Personal information errors can mean your lender can’t identify the correct credit report when you apply for a loan or when they report information to the credit bureau.

Next, review the list of credit accounts and your credit history. This is where banks and credit providers make a lot of reporting mistakes. A credit report error can significantly affect your credit score.

In addition to errors in your personal information, look for the following in your credit file:

• duplicate accounts,
• fraudulent accounts,
• incorrect balances,
• incorrect notices of late payment and dates of last payment
• closed accounts still marked as open
• negative information reported incorrectly
• negative information not removed after the retention period has passed.

Creditors do not always report information the way they should, especially negative information. Credit reporting includes a code to indicate both the type of loan and payment status.

For account type, you will see four options: I for an installment loan, O for open (e.g. your cell phone bill), R for revolving credit (e.g. a credit card) and M for a mortgage. Each account will also have a payment status code:

1 – You pay your loan on time.
2 – Your payments are 30 days late.
3 – Your payments are 60 days late.
4 – Your payments are 90 days late.
5 – Your payments are 120 days late.
6 – Seldom used.
7 – You are in a consumer proposal, consolidation order, or debt management plan
8 – A secured creditor has taken steps to regain what they have loaned you (e.g. repossessed your car or home).
9 – A bad debt placed for collection or considered uncollectible, or you are bankrupt.

What if I filed a bankruptcy or proposal?

A bankruptcy or consumer proposal provides a stay of proceedings that freezes future creditor actions. Your accounts should effectively ‘freeze’ on your credit report at the date of filing and appear as either included in your bankruptcy or included in your proposal.

If you have filed insolvency, the notice will appear under the public records section of your credit report. Ensure that the date of filing and completion or discharge date is accurate. If a creditor has marked an account as in bankruptcy (R9) rather than in a proposal (R7), ask the credit bureau to update the account once your proposal is completed.

Other common errors we have seen creditors make in a bankruptcy or consumer proposal:

• continuing to report late payments after the bankruptcy or consumer proposal is filed
• accounts reported as sent to collections after a bankruptcy or consumer proposal is filed
• an incorrect narrative description regarding the procedure filed or other activity
• duplicate public records
• reporting a secured debt (for example, a car loan) as included in bankruptcy when it was not
• not removing a judgement

All of these can be fixed through dispute resolution, although credit bureaus often wish to wait until you are discharged or complete your proposal to make changes.

Dispute or fix credit report errors by following these steps

Read Transcript

While both Equifax and TransUnion have a dispute resolution process, the perceived lack of control that a person has over their credit report can be frustrating. A creditor or agency can place incorrect information on your credit report, but it is up to you to prove to the credit bureaus that the data is wrong.

If you spot something on your credit report that you suspect to be erroneous, you should contact the credit bureau directly to begin the dispute process.

Filing a dispute is free. You can dispute as often as you like and can resubmit additional documents if the credit bureau does not accept your position.

Keep track of what you submitted. Write down what items you disputed, what you want to be corrected, and keep copies of everything you sent to the reporting agency. 

It is important to fix errors early if you are planning to apply for credit since the dispute resolution process can take anywhere from 20 business days to 3 or 4 months. I generally recommend you wait to apply for credit until all corrections have been made.

Once you receive confirmation that your dispute has been accepted, wait 30 days, then get another copy of your credit report if the credit bureau didn’t already send you one. Check that the information is now correct. If not, file another dispute, perhaps with more documentation.

1. Gather your paperwork

Gather documents to support your position.

To confirm personal information, the credit bureau may ask for a valid driver’s license, birth certificate or a copy of a utility bill.

To prove a payment date, you may need a current account statement or a release letter from your creditor or collection agency. If you are correcting information about a bankruptcy or consumer proposal, you will need to send a copy of your discharge or certificate of completion or full performance.

If your credit report lists an overdue credit card, but the balance owing is zero, send Equifax and TransUnion a copy of the credit card bill showing the zero balance.

If the credit report notice period has expired after completion of your proposal or bankruptcy and the information has not been removed from your credit report, obtain a copy of your certificate of completion or discharge papers from your licensed insolvency trustee.

2. Contact Equifax and TransUnion with their dispute resolution form

If you have obtained a copy of your credit report, the last page usually contains the dispute resolution form that you need to complete and forward to the credit bureau along with any documentation. The forms can also be found online here: Equifax dispute resolution and TransUnion dispute resolution.  While you can send a dispute letter to either reporting agency, it is better to use their formal credit dispute process.

We recommend you mail a copy of your dispute resolution and keep copies of all information for your own records until you have confirmed the report has been corrected.

It may take a month or two for the credit bureau to confirm your information. If they can verify the information you provided with the lender, they will correct the error. You should check your credit report once again after this period to ensure that all errors have been corrected.

Here’s an additional tip: Remember to attach a note to the dispute resolution form requesting a written reply for your records and keep a copy of the updated credit reports and all documentation, including any insolvency documents, in a safe place for future reference. You’ll want to make sure you have documented the necessary paper trail in case of any issues with a future credit application.

3. Contact the lender

If the mistake originated with your lender when they reported to the credit bureau, contact them and ask them to update their file. This is important to avoid having the same mistake forwarded to the credit bureau a second time.

Make sure to get proof that they updated their information. If you are still not satisfied with the results, you can file a complaint with the Ministry of Government and Consumer Services.

4. Avoid credit repair services

Also, be wary of companies that offer to remove negative information from your credit report for a fee. Negative information stays on your record for a certain period of time, and paying a fee will not remove the negative information early. Errors can be fixed if you follow the above process.

You should also carefully read the fine print on any company or loan product that offers a quick fix credit repair. Many of these programs or credit repair loans do not work as advertised, and you can easily repair your credit on your own without these services at a much lower cost to you.

Do you need to update records with both credit bureaus?

It very much depends on what the lenders have reported to the bureaus. If there is an error in one report, then it is very likely to also be present in the other. As you can only request one free credit report per year from each bureau, you might benefit from ordering a credit report from just one agency, followed by one from the other six months later. Errors in your credit report can take up to four months to be updated, so this method is also a good way of checking that the mistake has been corrected without you having to pay for a new credit report.

The post How To Correct Errors On Your Credit Report appeared first on Hoyes, Michalos & Associates Inc..

1. Your credit report contains information about you and your credit transactions including basic personal information and your payment history as well as public information including whether or not you filed a bankruptcy, proposal or debt management plan.  Your report includes information about when you opened your accounts, how much you owe, whether you make payments on time, if you miss payments, if you have accounts that have been sent to collection and whether you go over your credit limit. Credit history is provided by lenders to the credit bureau and is updated every 30 days. Information about your bankruptcy or proposal is provided by the Office of the Superintendent of Bankruptcy when you file and after your discharge or completion.
2. You don’t have to pay for a copy of your credit report. By law, you can obtain your own credit report for free from Equifax or Trans Union. While you can get a copy of your credit report for free, you must pay to get our credit score. Here is a bonus tip: you are entitled to receive one free copy of your credit report (not including your credit score) each year. If you want to review your credit report more frequently, you could request your Equifax credit report now, and then your TransUnion report in six months, and continue alternating every six months with each credit bureau.
3. Your report may contain errors. These errors can be about your personal information such as your mailing address or social insurance number but can also include errors about your credit account and payments details such as a debt that you’ve already repaid. It is very important to correct any errors on your report by providing supporting documents to the credit bureau through their dispute resolution process. The Equifax process can be found here and the TransUnion page can be found here.
4. There are 6 basic factors that affect your credit rating:
   • Payment history shows whether you pay your bills on time.
   • Credit utilization is an indication of how much of your credit you use. Bumping up against your limit is bad for your credit score.
   • Length of credit is how long you have had each account.  The more (positive) experience you have with credit, the better your score.
   • Stability: The longer you have lived at your current address, or have worked at your current job, the better your credit score.
   • Type of credit will also influence your credit score. A healthy mix of accounts between credit cards, lines of credit and term loans will improve your score.
   • Credit inquiries will also impact your score. The more ‘hard’ hits you have by lenders, landlords or employers the lower your score.
5. Your credit rating might be different than the one your lender sees. A lender may order a credit report that is designed to meet their needs. They may put more weight on certain factors depending on the reason they are assessing your credit worthiness. In addition to there being two prominent credit reporting agencies in Canada, your lender has access to scores you do not such as your bankruptcy score.
6. Limit the number of credit applications you make. If too many lenders inquire about your credit in a short period of time, this can have a negative impact on your credit score. Lenders, landlords or anyone assessing your credit can only request your credit report if you give them permission.
7. If you have more debt than you should, make a plan to pay it down. If you can’t do that on your own, talk to a debt expert like a Licensed Insolvency Trustee to review your options.

Other factors that can have a negative impact on your credit score:

• Moving recently or frequently. The longer you live at a resident the better for your credit. If you are moving temporarily (for school or work), consider using a family member’s address as a permanent address.
• Changing jobs or employers often. Your credit rating is based on the perception that you have the ability to repay a loan. A long employment history has a higher correlation with credit repayment and thus will increase your credit score. Frequent job changes will lower your credit score.

What Credit Score Do You Need?

Both TransUnion and Equifax use a credit scoring system which gives you a number between 300 and 900. How both report these numbers differs slightly, however the higher your score the more likely you will be to qualify for credit at a good rate.

It is not, however, necessary to chase the highest score. Perhaps all you want is an unsecured credit card for daily use (which you will now pay off every month). If this is the case, you will need to achieve a score above 560 (600 for TransUnion). Achieving this objective can happen very quickly, without needing to work hard to build a better credit score.

If, however, you plan to purchase a car or apply for a mortgage then you will need to build a better credit score. This will take time but can be achieved through effective strategies to rebuild your credit.

Our infographic below summarizes some information about how your credit rating is determined and provides further tips on getting a loan after bankruptcy.

The post 7 Facts About Your Credit Rating (What’s in your Credit Score?) appeared first on Hoyes, Michalos & Associates Inc..

How much credit do you need?

I don’t advise that anyone, after completing a consumer proposal or bankruptcy, jump right in and start borrowing again. If you can live without debt, that’s great. However, in today’s modern economy you might need or want access to credit.

The first thing you should do is figure out why you want to improve your credit score. Begin by writing down your expected credit and financial goals.

Credit goals to consider:

• Qualifying for a car loan
• Getting a mortgage
• Getting a credit card
• Qualifying for a line of credit
• Getting a student loan to go back to school

In addition to determining your future credit needs, it’s important to consider what financial or savings goals will help you qualify for new credit. 

Savings goals relating to access to credit might include:

• Setting aside money for a secured credit card
• Saving a deposit for a car loan
• Saving for a down payment to purchase a home

These savings goals need to be balanced with other financial goals like saving money for your child’s education or your retirement, so you don’t need to rely on credit in the future.

A credit score is simply a three-digit number between 300 and 900.  The higher your score, the more credit options you will have and at lower interest rates. With Equifax:

• 729 to 759 is very good
• 660 to 724 is good
• 560 to 659 is fair
• Anything below 560 is poor

If all you need is a credit card for bill payments or emergencies, you can generally qualify for a secured credit card with a credit score around 650. Even someone in an active consumer proposal or bankruptcy can get an unsecured credit card from certain credit card issuers as long as they don’t have a history of bankruptcy with that provider.

However, if your goal is to take out an auto loan or apply for a mortgage, you will need better credit.

But you need more than just a good score if you are thinking of getting a mortgage or low-interest car loan. To qualify for a larger loan from a regular lender, like a mortgage, your credit will be considered re-established when:

• Two years have passed since you finished your bankruptcy or proposal
• You have two accounts active or established after your completion date, and
• Each account has a credit limit of $3,000 or higher.

One final word on credit scores. Your credit score is for the bank’s benefit, not for your benefit. Credit scores are designed to help the bank decide if they should lend to you. They are there for the bank’s benefit, not yours. Your credit score is only important if you want to borrow in the future. Never chase a credit score for vanity’s sake.

DIY Credit Repair

Repairing credit on your own is possible; it’s not complicated and it is often the fastest and cheapest way to rebuilding your credit. To rebuild credit you need to create a reputation as someone who can handle credit wisely.

Here are the five steps to take to repair credit on your own.

Step 1 – Get a copy of your credit report

Your credit score is only as good as the information that is on your credit report. Credit bureaus get their information from your creditors, and mistakes happen. It’s up to you to ensure that the information on your report is accurate and presents a good image of how you manage credit.

The first step in rebuilding credit is to get a copy of your credit report. The best source is directly from TransUnion, Equifax or your bank if they offer you that service for free in their app or online banking platform. You can request a free copy of your credit report online, by mail or by phone. We’ve provided links and instructions in our article on how to get a copy of your credit report for free.

If you are rebuilding credit after filing a bankruptcy or proposal, we recommend waiting at least two weeks after your discharge or completion before requesting a copy of your report. You want to wait long enough for the government to report your completion date to the credit bureaus, and this is done weekly.

Step 2 – Fix all errors on your report

Now that you are armed with a copy of your credit report, the next step is to look at all the information and see what needs fixing.

There are several areas on your credit report to review.

Personal information

Be sure that your name, mailing address, social insurance number, birth date, and employment information are correct.

List of accounts

Review the accounts or creditors listed on your report. Regularly checking that these are companies you owe money to is a good way to monitor for fraud and identity theft.

Balances and credit limits

This information is used to calculate your utilization rate, which has a big impact on your credit score, so you want to be sure it’s correct. Accounts included in your bankruptcy or proposal should show a zero balance upon completion of your program.

Narrative

Next to each account will be a comment or narrative. If you filed a proposal, any debts included should be marked as ‘included in proposal’.  Debts included in your bankruptcy will be marked ‘included in bankruptcy”.  If this description is wrong, highlight it as something to be fixed.

Each account will also have a two-part code next to it – a letter and a number.

The letter shows the type of account – R for revolving like a credit card or line of credit, I for installment loan like a car loan, O for open accounts such as an internet or cell phone bill, and M for mortgage are the most common.

After the letter is a payment code. 

• 0 means the account is new or approved, but you haven’t used it yet.
• 1 means it was paid on time. That’s what you are aiming for.
• 2 to 5 means there was a late payment on the account. The higher the number, the longer you were late. 2 means you were a month late, 3 means two months late, and so on.
• A repossessed vehicle is coded as an 8.

An account included in a consumer proposal should appear as a 7.  If your account is in collection or you filed bankruptcy, you will see the code 9.  It is not uncommon for creditors to report an account included in a consumer proposal as a 9 until it is completed. Credit bureaus may not update this to a 7 until your proposal is finished. What you do want to be sure though, is that the narrative is correct, as this is what lenders look at.

If you decided to keep a financed vehicle when you filed and are maintaining your payments, make sure there is no narrative beside this debt. Secured debts are not included in your bankruptcy or proposal unless you gave the vehicle back. And as I mentioned before, make sure to make payments on time on accounts that remain after you filed, as this will help you improve your credit score.

Payment activity

Check the date of last payment or activity and the number of late payments reported. If you have filed a bankruptcy or consumer proposal, the date of last payment should be frozen at the date you filed insolvency. Creditors, in particular Canada Student Loans, may continue to report late payments during your bankruptcy or proposal. Again, make a note of this but know that credit bureaus likely won’t correct this until after you have been discharged or your proposal is finished. When they do, they should backdate the correction and remove any late payments to the date you filed.

Public records section

If you have filed a bankruptcy or consumer proposal, review the Public Records Section of your credit report. This is where information about the type of proceeding, the date you filed, and the date of discharge or completion will appear.

Other items

Check for any closed accounts still marked as open.

Look for duplicate records – the same debt reported twice under different names, or a bankruptcy or proposal reported twice.

Watch for old accounts being re-reported by collection agencies with updated payment dates or the reinsertion of information you previously had corrected.

Once you have identified everything that needs correcting, visit our article on how to correct errors on your credit report to get the necessary links to the dispute resolution form and information on how to dispute errors with both Equifax and TransUnion.

Step 3 – Pay your bills on time

Your payment history has the largest impact and makes up about 35% of your credit score. Late payments are the worst thing you can do for your credit score. If you have a credit score over 800, one late payment could make your credit score fall 30 points. To rebuild your credit, you must always pay your bills on time.

During your bankruptcy or proposal, make sure you keep up with your internet, cell phone bill, car loan payment, or any other active account that remains after you file. Missed payments will affect your chances to rebuild.

Most major cell phone providers report to the credit bureaus today. Paying your cell phone bill on time during your bankruptcy or proposal is very important. While it does not help your score increase because the payment is small, paying late will hurt your score a lot.

Step 4 – Establish new trade lines

The most important type of credit for credit rebuilding is credit cards.  Mortgages and car loans and other forms of credit help, but credit cards have the most dramatic impact on your credit score. A credit card is revolving credit, meaning you control how much you use and repay each month. That makes a credit card the best tool to show you know how to manage credit wisely. And that is the goal of building a good credit history. Credit cards do not have a defined term like a car loan and as we know, the longer you have credit the better your score. Closing an old credit card account can lower your score drastically.

The downside is that high credit card limits can tempt you into borrowing. Only charge what you can pay in full each month.

If you really need a credit card during your bankruptcy or proposal, you can try getting a secured credit card. A secured credit card is backed by a deposit you leave with the credit card company. They will use this deposit if you stop making payments which is why they are willing to lend to more risky borrowers, like someone in a consumer proposal. Getting a secured credit card can help you jump-start your credit rebuilding enough to help you qualify for a regular card after your bankruptcy or proposal is finished. Be prepared though, not everyone who filed a bankruptcy will be approved while still in an active bankruptcy. Talk to your trustee or credit counsellor to see if applying for a secured card while bankrupt is a good idea in your situation.

Start by requesting a small credit limit, say $300 to $1000, depending on how much you can save for the deposit. Our experience shows that Capital One is best for active bankrupts, while Capital One or Home Trust Visa may approve your application during a proposal. The Capital One card comes with an annual fee. Both charge high interest rates, so be sure to pay your balance in full each month.

After your bankruptcy or proposal is complete, and you have corrected items on your credit report, apply for a regular credit card. Certain lenders are more willing to lend to someone with low credit, like Capital One or Canadian Tire (or what’s called Triangle now).  If you don’t have good enough credit to qualify for an unsecured card, try a secured card if you haven’t already done so.

After six months of making payments on time on your first new card, you have an increased likelihood of being approved for a second credit card. Credit card providers like MBNA, TD, CIBC, and PC Financial, in that order, are good options assuming these creditors were not included in your bankruptcy or proposal.

If you already have a car loan, you may already have a decent credit score, so you may not need a second regular credit card. As long as you are making your car payments on time, this loan already shows you can manage a healthy mix of credit.

Increase your limits slowly. Asking for a higher limit is asking for more credit, which may mean a hit on your credit report. If your credit card provider offers you a limit increase without you asking, then take it if it brings your unsecured limit up to $3,000 or higher.

Always wait a few weeks, or a few months, between credit applications. New credit may temporarily lower your credit score, so you don’t want to apply for a second credit card right after you got your first.

As a reminder, the goal if you want good credit so you can qualify for a low-interest car loan or mortgage is to have two active established accounts, with authorized credit limits of $3,000 on each card, and maintain a good payment history for two years after your bankruptcy or proposal is complete. You might get credit faster, but it may not be prime credit. It will likely carry a high interest rate and may not look good on your credit report to future lenders.

Step 5 – Keep your utilization rate low

Managing your credit score is more than just paying your bills on time. You must also manage your balances.

Filing your consumer proposal or bankruptcy allowed you to start your credit repair process with no more debt. That’s good.

However, as you rebuild your credit, you will need to carefully manage your future credit balances. Carrying high balances on your new credit cards will hurt your credit score.

Wait, so I can charge one thousand dollars on my new secured or unsecured credit card, but if I wait to pay off that balance until it’s due, my credit score could drop?

Yes, it’s called credit utilization, and it accounts for 30% of your credit score. Credit utilization is simply the amount of money you borrow divided by your total credit limit. Credit bureaus assume that if you need to use most of your credit limit, you aren’t managing your credit well and so lending you more money might be risky for the next lender.

To have a good credit score, you want a low utilization rate on revolving credit like credit cards or a line of credit.

And here’s the key point: you want to keep this balance low throughout the month. You don’t know when your balance will be reported to the credit bureau.  Your creditor might report your balance two days before your payment is due. If you have a high balance, it looks like you are carrying a lot of debt, even though you make all of your payments on time.

You want to prove to the credit bureau that you are responsibly using your credit card, and that you don’t need it, which is why you keep your utilization rate low.

So, what’s the right utilization rate? 

If you are rebuilding, our experience shows that zero is better than 30%, and you should never go over 50%.

So, if you have a limit of $500, how are you supposed to keep your utilization rate at or close to zero?

Simple, pay your credit cards early. You don’t have to wait until the bill is due to make a payment. I recommend you choose a fixed cost bill, like your cell phone or internet. Set this account to be paid off automatically each month with your new credit card. Next, pay off this balance the same day. After you set this up, hide your card so you won’t be tempted to spend more than you should.  Check your credit card statements every month to make sure this is working and that your balance is zero on the due date.

This will do two good things for your credit. You will have a history of payments, and your balances will be low. You are proving that you don’t need the money.

It’s possible to lower your utilization rate by getting another credit card or raising your limit. However, having a lot of credit is risky. You might be tempted to run up your balances, leaving you in trouble with debt again.

Also, if you have a lot of credit cards with high limits, even if your score is good, future lenders may not be willing to loan you more money because they think you have too much credit already.

You only need to worry about managing your credit utilization on revolving credit like credit cards and lines of credit. You can’t manage your utilization rate on your mortgage or car loan. These types of loans start with a 100% utilization when new, and you make fixed monthly payments. Over time the balance you owe falls until it reaches zero.

Build good financial habits, not your credit score

After your bankruptcy or proposal, while you may want to rebuild your credit, my last word of advice is don’t obsess over your credit score.

If all you need is a credit card for everyday use, a credit score in the mid- 600s is likely good enough.

If you take the steps I outlined to re-establish your credit, including two active trade lines with authorized limits of $3,000 each, you should be able to get a mortgage or car loan at a reasonable rate two years after your bankruptcy or proposal is finished.

But getting a loan, and affording a loan, are two different things. The larger your down payment, the better chance of approval since the amount of loan you are asking for will be lower.

Also, remember that more debt benefits the bank. The more you owe, the more interest you pay.

What you don’t want to do is go back to using credit to make ends meet.

That’s why I recommend you focus on building some savings while in your bankruptcy or proposal as you prepare to rebuild your credit.

Remember, credit is not your money. The trick while taking on new credit to rebuild is to find the right balance. You need to show you can use credit but do so responsibly and not get overextended.  You want to take on the right amount of credit at the right time for the right reasons.

My normal advice is not to use credit cards to pay for everyday living expenses like groceries or gas. Yes, you can earn some points, but the balances can quickly grow past what you can pay. If you do use your card more often, make multiple payments throughout the month – for example, with each paycheque. It will reduce the risk that you will end up with a balance you can’t pay off at the end of the month.

And if you do apply for a larger loan, apply for only as much credit as you need, whether it’s a car or a house or anything else you might finance. Don’t take on more credit than you can afford to repay. Focus on building savings, not debt.

Your end goal is to be better off financially, not to have a better credit score and lots of credit.

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Why you should check your credit report annually

This annual routine is important because you don’t want inaccurate information to hold you back from achieving your financial goals. Here are some big reasons to check your credit report:

1. Before making a major purchase with financing, like a house or car, the prospective lender will want to review your credit file. Inaccurate information may mean that you are declined or offered a higher interest rate.
2. Identity theft is becoming more prevalent. You may not realize that somebody has obtained a credit card in your name until seeing the details on a credit report.
3. Many employers require a credit check as part of the hiring process.
4. Creditors and collection agencies may update one credit report, but not all. It is important to verify that your credit report is correct within each credit bureau, because a lender, employer or potential landlord could check any one report (and odds are they may only check one), impacting whether you will be approved.

Below are links on where to get your free credit report and how you can apply to have errors corrected.  We also explain what the typical credit report looks like.

How to get your free credit report

Read Transcript

We recommend getting a copy of your credit report directly from TransUnion or Equifax, Canada’s two major credit bureaus. As an alternative, you can get a copy through your bank if they offer you that service for free in their app or online banking platform.

Companies like Credit Karma or Borrowell also provide free reports, but our experience is that these reports do not always agree with what the credit bureaus have on file, and their information may be somewhat out of date. Potential lenders don’t see reports from these FinTech companies. Lenders will look at either TransUnion or Equifax, so you want to check that these sources are correct.

Both credit bureaus will want to verify that you are who you say you are. They will require you to send copies of 2 pieces of ID with your application. If you have recently moved, a copy of a phone bill or lease agreement will provide evidence of your correct address.

Here’s how to get your credit report for free:

Online

FREE online credit reports are normally only available from TransUnion.  However, due to the coronavirus, Equifax is currently making credit reports available for free.

• Follow this link to the TransUnion website
• Follow this link to the Equifax website.

You just need to answer a few personal questions to confirm your identity as well as provide your address and social insurance number.  One your identity is confirmed, you will be able to immediately print your credit report.

Please note the online system does not work perfectly. You may need to request a copy by phone or mail instead.

Telephone

Calling each credit bureau is one way to obtain your credit report free of charge.

• Equifax Toll Free 1-800-465-7166
• Trans Union Toll Free 1-866-525-0262

Each credit bureau requires similar information: social insurance number, date of birth, address (including postal code), credit card number (even if it is no longer active).

Estimated Waiting Period: You would typically receive your credit report within one to two weeks.

Mail or Fax

This is the other free method.  Mail and fax are technologies that may seem old fashioned, but they are still effective.  You can complete the credit request forms for Equifax and TransUnion and then submit by mail or fax. 

Equifax:

National Consumer Relations
P.O. Box 190, Station Jean-Talon
Montreal, Quebec
Fax: 514-355-8502

TransUnion

Consumer Relations Centre
PO Box 338 LCD1
Hamilton, Ontario L8L 7W2

Turnaround time is typically one to two weeks.

What if I find an error on my credit report?

Credit bureaus get their information from various creditors and sometimes mistakes are made in both reporting and recording. If you do find errors, it is important to get these mistakes corrected as soon as possible.  You can follow the links to the dispute resolution procedures for Equifax and TransUnion. You will need to provide proof of the error and will need to be diligent in following up to ensure the issue is corrected.

If you have been bankrupt or filed a consumer proposal, the notice of your filing will be removed from your credit report after a certain period of time. If you believe your notice should be removed, use this dispute resolution process to contact the appropriate agency. Each bureau keeps records for a different length of time but generally the notice of your bankruptcy or proposal should be removed:

1. A first bankruptcy will be removed after six to seven years following your discharge (depending on the credit bureau). This is extended to 14 years for a second bankruptcy.
2. A consumer proposal will be removed from your credit report 3 years after all your payments have been completed.

Another common issue we see is that creditors will incorrectly report individual debts as ‘included in a bankruptcy’ when they may have been included in a consumer proposal. The correct legal proceeding is reported to the credit bureau by the Office of the Superintendent of bankruptcy and will appear in the legal section of your credit report.  These debts should be purged from your report six years after the last activity. For some creditors this will be the last payment date, for others it may be the date of filing bankruptcy or a consumer proposal.

What does my credit report look like?

Your free report won’t tell you your credit score. But since what you are doing at this stage is checking for inaccurate information, you don’t need your credit score.

Each creditor that reports to the credit reporting agencies will have their own line where they report on your payment history. These are called trade lines. Creditors will report your history with a letter followed by a number. The letters are loan codes and the numbers are payment history codes. Let’s decode them together:

Loan Codes

• I – Installment loan (repaid over time with a set number of scheduled payments e.g. car loan)
• O – Open credit (pre-approved loan amount that can be used repeatedly up to a limit, and paid back e.g. line of credit)
• R – Revolving credit (automatically renewed after debt is paid off e.g. credit cards)
• C – Sometimes used in place of revolving credit
• M – Mortgage loan

Payment History Codes

• 0 – Too new or approved, but not used
• 1 – Paid within 30 days or as agreed (on time)
• 2 – Late payment: one month behind
• 3 – Late payment: two months behind
• 4 – Late payment: three months behind
• 5 – Late payment: more than 30 months, but not yet rated “9”
• 7 – Making payments under a debt plan (could be a consolidation order, orderly payment of debts, consumer proposal or debt management plan)
• 8 – Repossession
• 9 – Written off as bad debt, sent to collection or bankruptcy

Your credit report will include your legal name, birth date, and a note about whether or not your social insurance number is on file. It will also include a list of all known addresses, employers, and phone numbers. All of these will be listed starting with your most recent, and ending with the oldest known entry.

Below is a sample of how your credit report from Trans Union will look.

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