Your credit report summarizes your credit history and helps lenders weigh your credit risk. Often your credit report is initiated when you apply for your first credit card. Over time it can help you reach your larger financial goals such as obtaining a rental agreement or mortgage. When you apply for a credit product, you may request your report to get one number—your credit score. But that detail is just one aspect among a long list of confusing text and alphanumeric codes. Credit reports can seem cryptic and hard for the average consumer to interpret. However, reading and understanding them is an essential part of maintaining good credit and healthy financial habits.
In Canada, consumers are allowed to request their credit report free of charge at least once a year from the two main credit bureaus, Equifax and TransUnion. Asking for your information from one reporting agency and then the other every six months can help you stay up to date with your credit report and ensure the information is accurate.
Here’s a quick guide to what your report contains and who is allowed to use it.
Although your credit report will look somewhat different from each bureau and may contain slightly different information depending on the details shared by creditors, the codes and ratings are the same. The Financial Consumer Agency of Canada (FCAC) has sample credit reports from Equifax and TransUnion to illustrate the information that typically appears on a credit report.
Every consumer’s credit report will vary because of personal details like employment and credit inquiries but will contain the following fundamentals.
It is important to keep your personal information up to date.
This score will directly impact the interest rate you qualify for when applying for a loan. An algorithm calculates your credit score and reflects your creditworthiness, and the risk of delinquency you pose to a lender. Credit scores range between 300–900. Generally, scores above 760 are considered excellent, while those with scores below 600 may find it more challenging to get credit.
Positive and negative information will appear on your credit report:
Each credit product should show the finer details like when the account was opened, how much you owe, if you are in good standing, and if you have missed payments or went over your credit limit.
You will see the total number of accounts you have that are open, closed, or have been classified as delinquent, as well as the balances and number of payments you have made.
The codes have two parts, a letter depicting the type of credit, and a number showing the status of your payments.
According to the FCAC, any number code greater than one may hurt your credit.
If you have a credit card in good standing, you will see R1 on your credit report. If you forgot to pay your car loan within the 30-day window, you would see I2 on your report.
According to the FCAC, credit bureaus are required to follow guidelines regarding who can see your credit report and how they can use that information.
Businesses or individuals that are allowed to see your credit report include:
They are allowed to use the information on your credit report to make the following decisions about you:
If one of these organizations pulls your credit report because you have applied for credit, it may result in a hard inquiry. Hard inquiries are necessary anytime a lender is weighing your eligibility for approval. You may experience a drop in your credit score if you have too many hard inquires in a short period, and it may raise a red flag to lenders. That is why it is important to seek credit only when you need it.
If you, a lender, or business checks your credit score for informational purposes, it typically won’t result in a hard inquiry and won’t impact your score. These types of requests are considered to be soft inquiries and aren’t visible to potential lenders.
Some consumers may believe that credit bureaus are the ones deciding whether to give or deny credit. That’s a common misconception. These agencies provide credit reports, but the lender decides to extend credit based on the information in the report. Generally, lenders use the data in combination with a formula of their own to rate your creditworthiness and approve or deny your application.
Improving your credit score and cleaning up your credit report isn’t as simple as paying missed bills and becoming debt-free—although that can help. Paying your bills on time and consistently, never missing a payment, holding various credit accounts, and apply for credit only when you need it, can increase your score.
However, poor credit choices and bad financial decisions can stay on your report for upwards of six years, if not longer. That is why starting on the right foot, with a good understanding of your credit report and how it can affect your future financial choices is vital for reaching your goals.
Reviewing your credit report at least once a year can help you catch and report errors. If you think an item on your report is an error, first, contact both Equifax and TransUnion and notify them of the mistake. If the error is in your personal information, you should ask that the details be corrected. If the item is suspected to be fraud, request an alert on your credit report. Also, inform the Canada Anti-fraud Centre.