If you’re applying for a mortgage, an apartment rental or even a new phone plan, there’s a good chance your potential lender, landlord or service provider will want to take a look at your credit report. That’s because your credit report shows your history as a borrower and offers a good idea of how likely you are to pay bills on time. Here’s what you need to know about credit reports in Canada.
What is a credit report?
While a credit score is a single number between 300 and 900 that indicates whether you’re a good credit risk, a credit report provides a much more comprehensive look at your entire credit history and overall creditworthiness.
Your credit report is created the first time you get a loan or apply for a credit card. Once your first credit account is opened, your lender will send your credit information to one or both of Canada’s main credit bureaus, Equifax and TransUnion.
A credit report contains detailed information about you and all your loans, lines of credit and credit cards. More specifically, this includes:
- Personal identifying information such as your name, birth date, Social Insurance Number (SIN), and current/previous address(es), phone number(s) and employer(s)
- A list of all your credit accounts and when each was opened and/or closed
- Your payment history
- Your credit limits/loan amounts, how much you currently owe, and last activity on each account
- Bankruptcies and overdue accounts sent to collections
- A list of creditors who have accessed your file in the past three years
What is a credit rating?
Though the terms ‘credit rating’ and ‘credit score’ are often used interchangeably, strictly speaking, a credit rating is very different from a credit score. As mentioned above, a credit score is a three-digit number that reflects how likely you are to pay off debt. A credit rating, however, is a code used by lenders when they send information about your account to the credit bureaus. These codes, which consist of a letter and a number, may appear on your credit report.
The letter reflects what kind of credit you’re using, while the number shows how good you are at making payments. So, for example, the letter “I” stands for an instalment loan, such as a car loan, “M” stands for mortgage, and “R” is for revolving debt (e.g., credit cards and lines of credit).
Numbers for credit ratings range from 0 to 9. Zero means your account is too new to have recorded a payment, while 1 means you paid the account on time as per your agreement. Any number greater than 1 signifies that you’re late with a payment. For example, 2 means your payment is late by 31 to 59 days; 5 means payment is more than 120 days late; and 9 signifies that the amount owing was written off as bad debt, sent to a collection agency or that you declared bankruptcy.
How is credit established?
It’s important to build up your credit history because a favourable credit report will help you get credit cards, mortgages and personal loans with better interest rates. You automatically establish credit every time you take out a loan or use a credit card. But if you’re finding it hard to get approved for loans or credit cards because you don’t have a long or well-established credit history, consider these other ways to establish credit:
- Get a secured credit card. Secured credit cards are ideal for people who can manage a credit card responsibly but don’t yet have a long enough credit history to be approved for a conventional credit card. With a secured credit card, you provide the issuer with a deposit that then becomes the card’s credit limit. So, if you give a deposit of $1,000, you can then spend up to $1,000 on the card. Secured cards are easier to get because the card provider isn’t at risk of losing any money — it can access your deposit if you default on payments.
- Apply for a secured loan. As with a secured credit card, a secured loan guarantees repayment of the loan by providing an asset like a car or home as collateral.
- Get a co-signer. If you can’t get a loan and build your credit report on your own, you can try to get a co-signer. A co-signer essentially guarantees repayment of the loan. If you fail to make payments, however, your co-signer’s credit rating would be negatively affected, so you have to be sure you’ll repay the loan.
» MORE: How to get a better credit score
How to check and monitor your credit report and score
You can get a free copy of your credit report from Canada’s two main credit bureaus Equifax and TransUnion. (Note that Equifax also offers credit scores for free; TransUnion does not unless you reside in the province of Quebec.) You simply need to visit the respective website and follow the directions. Both credit bureaus also sell more comprehensive credit monitoring services for a monthly fee.
Some personal finance sites in Canada will give you a free score and credit report when you register with your email address. Some banks in Canada are also now offering free scores and credit reports as a perk.
» MORE: How to check your credit score
How to fix errors on a credit report
It’s always wise to stay on top of your credit report to correct any mistakes and keep tabs on your credit score. Getting a copy of your own report is considered a soft check, so it won’t affect your credit score.
If you review your credit report and find any mistakes, simply contact the credit bureau directly. You may then be asked to fill out a credit report update form and the credit bureau will then confirm whether the information is indeed in error and correct it if needed.
DIVE EVEN DEEPER
You can check your credit score and credit report for free by contacting Canada’s two main credit bureaus, Equifax and TransUnion, without hurting your credit.
The less credit you use, the lower your credit utilization rate will be. Keeping it below 35% is a guideline, not a rule — just make sure the ratio doesn’t drop to zero.