If you are thinking of borrowing money or applying for credit, your application will be assessed based on your credit report. But what exactly is a credit report and how is it used? It can be overwhelming to process all of the information contained in your report, so help you navigate through we’ve pulled together a credit report 101. Let’s begin…
What is a credit report?
Your credit report is a complete overview of your history managing credit and debt. If you have borrowed money, signed up for a cell phone contract or have a credit card you have a credit report.
It will cover everything from how much debt you have, your repayment record, your employment history, where you live and whether you’ve ever had any bankruptcies, repossessions or lawsuits filed against you.
Depending on your financial history, a credit report can be very long, sometimes in the hundreds of pages. All of the information it contains is used by lending companies to decide how trustworthy you are to lend to. They’ll use your credit report to decide how much of a risk it will be to lend to you, and the terms of any subsequent loans or credit will be determined based on this. It’s kind of like your credit passport.
Who creates credit reports?
Credit reporting agencies – also known as credit bureaus – produce credit reports. The two main credit bureaus in Canada are Equifax and TransUnion.
Companies who supply credit (known as credit grantors or lenders) regularly update your individual credit reports by providing information to the above two bureaus regarding your credit activity. This means that your credit report stays up-to-date, usually to within the last 4 months worth of activity.
It’s often very helpful to get a report produced by both credit bureaus to get a full picture of your credit rating. That’s because not all loans and financial activity are reported to both credit bureaus, so a report from just one is likely to contain gaps.
What’s on a credit report?
Personal identity data
Credit reports contain information about your personal data, including your name, address, and place of work. If you have any logged misspellings of your name or addresses, these are likely to also be on your credit report as it can be a sign of identity theft (though often it’s just the result of a clerical error).
Credit information
Your credit report will include comprehensive information about all your credit and loans. This includes information about your credit card history (including all repayments), and any other loans you have accumulated. It may also contain details about your mortgage, though this isn’t used to calculate your credit score as it’s not reported by all lenders.
Banking information
Your report will contain banking information such as the bank accounts you own and your NSF cheque history.
Public Record information
If you have ever had any bankruptcies, repossessions, lawsuits filed against you or tax issues, they will appear in your credit report as public record information.
Third-Party Collections
Your credit report will detail any collection agencies who you have been involved with, either now or in the past.
Your credit check history
Your report will contain information about any businesses that have recently checked your credit rating (in the last 3 years). These are known as inquiries. Having lots of inquiries will negatively affect your credit score, as it suggests that you have applied for credit and been denied many times.
What do your rating codes mean?
In Canada, each of the companies that you have credit with will assign you a score from 1-9. R1 is the best rating possible, and R9 is the worst. Here’s an overview of what the ratings mean in more detail:
R1 – You pay your loan on time.
R2 – Your payments are 30 days late.
R3 – Your payments are 60 days late.
R4 – Your payments are 90 days late.
R5 – Your payments are 120 days late.
R6 – Typically not used.
R7 – You are in a consumer proposal, consolidation order, or debt management plan
R8 – A secured creditor has taken steps to regain what they have loaned you (e.g. repossessed your car or home). It rarely appears on a credit bureau report as after they take your car they generally commence legal or collection action which is rated R9.
R9 – A bad debt placed for collection or considered uncollectible, or you are bankrupt.
How often should you check your credit report?
The short answer is: at least once a year; though, preferably twice. It’s important to make sure that the information contained in your credit report is accurate – particularly to ensure you have not been affected by identity theft. If you’re in the process of trying to improve your credit rating, then it’s helpful to check your report more frequently to ensure that your efforts are having an effect.
You should consider your credit rating your personal property. It’s your responsibility to make sure there’s nothing on there that’s inaccurate (as this could affect your ability to borrow credit in the future), so the more on top of your rating you are, the better.
How to get a copy of your credit report
Depending on how frequently you need to check your credit report, you can obtain one free copy of your report each year from the credit bureaus. TransUnion allow you to order your free report online, whereas Equifax require you to mail or fax in a request form.
If you need to check your report more frequently than once a year then it is a good option to stagger your requests to each bureau over the year (i.e. order from each bureau at 6 monthly intervals).
If you are in the process of rebuilding your credit rating, you can pay the bureaus for more regular reports. There are also third party companies that you can order through, such as Credit Karma, Mogo and Borrowell. Though these services are tempting as they are free, the reports only show summary information so you won’t have a full picture of your credit report’s health, so we strongly advise against them.
Is it worth paying for a credit monitoring service?
One of the biggest issues for Canadian consumers is the risk of identity theft. Without you knowing it, your details could be being used fraudulently to borrow – and usually default on – credit, leaving your credit rating in a sorry state.
Some credit rating agencies, credit card issuers and banks offer monitoring services to alert you if anything unusual crops up. But, perhaps unsurprisingly, they don’t come cheap. So – are they worth it?
Well, it really depends. If you have recently been the victim of identity theft then a monitoring service can be invaluable for keeping your accounts safe moving forwards. It’s also a great way of helping you to rebuild your financial confidence, as identity theft can be a traumatic experience for any consumer. However, that security does come at a steep cost – so if you are yet to be affected by identity fraud then it is often sufficient to simply keep an eye on your credit rating once or twice a year. This will allow you to manually keep on top of anything suspicious.
So, what does a credit report look like?
How your information is presented will depend on which credit bureau you use and whether you’ve ordered it online or through the mail. However, generally speaking, the information they contain will be structured in a similar way.
We’ve included a sample copy of a credit report from both Equifax and TransUnion so that you can familiarize yourself with what they look like and how to read them.