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The Basics of Credit Reports

This is a column by regular contributor Clark.

What is a credit report and credit score?

A credit report is the record of a consumer or organization’s borrowing and repaying history including applications to open an account (bank, credit card, mortgage, etc.), late payments and bankruptcy. It contains details about the institutions that have inquired (checked) about the person’s creditworthiness. A credit score is a dynamic number based on statistical analysis of the consumer’s credit report information; the higher the credit score, the better the creditworthiness of that person.

How do credit bureaus get details about your finances?

When a person opens a bank account, submits a credit card application or signs up for a new phone connection, the company the applicant is dealing with sends the personal information (name, address, date of birth, social insurance number if available, etc.) to the credit bureaus. The credit bureau matches this information with that on its file and updates its record by adding the recent entry. If a file does not exist in the name, then it is created and that establishes a starting point for the applicant’s credit history. Institutions where one maintains a regular debt connection because of their credit card or mortgage (whether payment is made in full by the due date or not) report to the credit bureaus on an ongoing basis about the present status of the account i.e., the payment history and whether the account is up-to-date, late or closed.

Why do they collect this information?

The reporting of the opening of accounts, application for other services and payment history helps the credit bureaus maintain a credit profile of the consumer. Future applications for credit of any kind are decided based upon past evidence. Also, phone companies, landlords and some employers (I hear!) utilize the information contained on the applicant’s credit file to make a decision. Regular payments made on or before due dates are accorded higher value than consistent late payments, since it underscores the ability of the consumer to meet their financial obligations. It should be noted that the credit reporting agencies do not make the decision whether an applicant should be granted credit and it is at the discretion of the organization doing the credit check. Soft credit checks do not affect the credit score while hard checks do. So, it is prudent to keep the number of hard credit checks to a minimum, especially before applying for a loan, financing a car or mortgage.

Who are the credit bureaus of Canada?

There are two credit bureaus that collect information and maintain the credit files of consumers in Canada, namely Equifax and TransUnion. There used to be a third agency, Experian, that carried out similar services but they have ceased their Canadian consumer credit bureau operations since April 2009.

Equifax retains a consumer’s credit history for 6 years from the date of last activity and banking information for 6 years from the date of registration after which they are automatically purged from the system. TransUnion’s policy is to keep all information for the maximum time allowed (6 to 7 years) by credit reporting legislation and may vary depending on the province.

Can the consumer get to see their credit file?

Yes, both credit reporting agencies allow every consumer to order their credit report for free once each year as mandated by credit reporting legislation. However, the credit score is not included as part of this free credit report but can be viewed by paying a fee. Two photocopies of valid identification must be included for verification purposes (details in the links below). The consumer ordering their credit report every year does not impact the credit score. So, I think that it is a worthwhile exercise for every consumer to view their free credit report once a year and correct errors, if any.

Equifax: Can be ordered by phone, mail or fax; the phone number and link for the form are on the right hand side of the page. They will send a “Consumer Credit Report Update Form” along with the credit report, which can then be filled and returned to correct any errors on file.

TransUnion: Mail only; they will send an “Investigation Request Form” to dispute information found on the credit file.

Have you ordered your credit report lately? Found anything off? (My report had the name and employer misspelled!)

About the Author: Clark is a twenty-something Saskatchewan resident employed in the manufacturing sector. He repaid around $20,000 in student loans and has been working to build his investment portfolio as a DIY investor (not trader) while nurturing plans to retire early. He loves reading (and using the lessons learned) about personal finance, technology and minimalism.

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21 Comments

  1. S. Smith on May 20, 2010 at 9:48 am

    Excellent article.. link for soft check needs to be corrected..
    actual link is:
    http://www.moneybluebook.com/difference-between-soft-credit-pull-and-hard-credit-pull

  2. Tom @ Canadian Finance Blog on May 20, 2010 at 10:14 am

    You can also get your TransUnion credit report by fax as well.

    I created a PDF that has all the contact info for both companies as well as the forms they want you to use since the free reports are purposely difficult to find on their sites.

    You can find the PDF at the bottom of this post… http://canadianfinanceblog.com/2009/03/16/check-your-credit-reports.htm

  3. No Debt Guy on May 20, 2010 at 10:18 am

    Does anyone know if Equifax has fixed the glitch in their system which changed the months reporting and payment history.

    The last free report my spouse ordered showed my spouse was delinquent on every account. When we called the apoligized for the glitch.

    The good thing is lenders were aware of these issues and it won’t inpact your ability to get credit.

  4. Panda Mike on May 20, 2010 at 11:23 am

    Since banks have decided to report home equity line of credits (HELOC) on the credit bureaus, it had a major impact on individual’s credit score.

    For example, I had a 782 beacon score just before my HELOC was reported. Since I used it to the max (due to a leverage technique), my debt utilization ratio went way over 80% and my beacon score went down to 677…

    The good news is that, afte a while, you can still show that you know how to manage your credit and my Beacon score is back at 727…

    If you ever get into a fight with Rogers or any other celphone/ cable / internet company, make sure they don’t send you to collection. If they do, your credit bureau will be massacred and it’s pretty hard to fix it.

  5. The Passive Income Earner on May 20, 2010 at 12:43 pm

    I have had visibility of my credit check through my mortgage at the bank but my question is how often do you check on your credit?

    It’s important to be aware if you are going to get a loan or borrow money but otherwise the credit check lays dormant for me. Obviously, there is always the fear of stolen identity …

  6. MrRoboto on May 20, 2010 at 12:56 pm

    You can order your free credit reports from both Equifax and Transunion via phone now, just received mine from each of them about a month ago.

    A little more content, perhaps information on your opinion of the most cost efficient way of checking one’s numerical credit score, whether one should check it from both companies and a breakdown of the numerical ranges (which constitute excellent credit etc) would have been useful to alot of people and really filled out your post.

  7. Robert on May 20, 2010 at 3:48 pm

    I have done the free report for years, just as a check. Never an issue for me.

    But I do offset the two agencies by 6 months, so in effect I see a report every 6 months.

    Never paid to get my score. My bank did tell me once what it was … My wife was just a few points shy of perfect and mine was about 20 points shy … I was offended it wasn’t closer to perfect!

  8. Ms Save Money on May 20, 2010 at 6:01 pm

    This is a great summary of what a credit report is essentially. I learned lots of new stuff like how they get your information. Thanks for sharing!

  9. Clark on May 20, 2010 at 7:50 pm

    Thanks for the comments.

    @The Passive Income Earner: Since both agencies offer the report free once every year, Robert’s idea of ordering them 6 months apart from each bureau would give you a report biannually.

    @MrRoboto: Good suggestions! I missed out on including a range that would be considered a good credit score. A credit score of 700-750 would be a good score and the high 700s and over 800 are treated as excellent ones.

  10. Future Money-Bags on May 21, 2010 at 6:19 am

    I pay under $20/month to have 24/7 access to my credit history, instant notifications, fraud protection, ways to improve credit score, and much more.
    I never used to think it was important, and if I ever needed it I could just order… But now I am glad to have access to it all the time.

    It’s definitely worth it to know your score if applying for mortgages and loans and becoming approved for many things of course, but more importantly you need to know when companies are doing hard credit checks against your score, this hurts it.

  11. mel on May 21, 2010 at 3:06 pm

    I requested my free credit report from Equifax in 2008. When I got it, my credit history is reported back to 1995! In your article, you said they permanently purge anything over 6 or 7 years.

    How do I get them to permanently purge anything on my credit record over 6 or 7 years old? And why are they still recording my credit history back to 1995???

    I cannot get a “live” person at Equifax so anything you advise would be greatly appreciated. Thanks.

  12. James on May 21, 2010 at 7:30 pm

    all in all you only need to look at your credit score if you are getting ready to apply for a loan.

    here’s the think you know if you have good credit or not simply by know if you make your payments on time or not bottom line.

    so if you make your payment you can borrow money at a cheaper interest rate.

  13. Toronto Bankruptcy Trustee on May 22, 2010 at 3:02 pm

    If you’re looking to check your credit history for free, deal with Equifax instead of Trans Union. Equifax is much more efficient in getting the information to you: you need only fax them a copy of your ID and a recent utility bill. You’ll get your credit report via mail in about 2 weeks.

    TransUnion on the other hand, is very frustrating to deal with if you are requesting a free credit report. They require much more verification and make you jump through hoops before they’ll issue a report to you.

  14. Clark on May 22, 2010 at 4:30 pm

    @Mel:
    Equifax purges credit transactions and banking information after 6 yrs; credit inquiries after 3 yrs; single bankruptcy – after 6 yrs from discharge date; multiple bankruptcies – 14 yrs from discharge date for each;
    TransUnion: All information is purged after 6 to 7 years including first-time bankruptcies. However, I do not know the retention time for subsequent bankruptcies.

    The information I have given above is correct as of March 2010. I do not know if this has always been the policy. If you haven’t, why not order a report now to see how things stand?

  15. Leo on May 22, 2010 at 6:11 pm

    You guys…All of you guys, are just awesome.

    Great information, period.

    Wishing all of you a profitable 2010!

  16. Money Green Life on May 24, 2010 at 10:41 am

    I didn’t learn about credit reports and scores until I was buying my house a few years ago. they said I had 800 score! I was shocked!

  17. InstruMike on May 24, 2010 at 3:05 pm

    thanks for the good info!

    I ‘ve recently gotten my credit score from Equifax. It was 767. I used this in my negotiation with my mortgage lender and was able to get the interest rate dropped by 0.25%. I’m relatively new to negotiating these kinds of things and would like to know if any of you readers out there think I got a good deal or not. The posted rate for the 12 month convertible mortgage from PCF was 2.90%. I talked them down to 2.65%.

    Honestly, I would have been happy with the 2.90% but I thought i’d try to talk them down and they went for it. I saved myself about $350 in interest for the 12 months.

    Any feedback would be appreciated

  18. The Passive Income Earner on May 24, 2010 at 3:16 pm

    @InstruMike
    Good negotiating! A rule of thumb I have is that any posted rate from the banks can be negotiated to nearly 1.5% down. That’s the maximum the branch can actually go down without head office approval. A lot of the other lenders are usually lower than the posted rate for competitive purposes. I also know that under a 3 year term, the banks do not like to negotiate to that same level. All in all, I think you did very well.

  19. No Debt Guy on May 24, 2010 at 3:17 pm

    Hi Mike,

    Looks like you got a competative rate. Depends on when you actually received it though as rates have been fluctuating lately.

    A couple of months ago we got 2.49% and if we had been in a week earlier we would have had 2.35%.

  20. InstruMike on May 24, 2010 at 7:30 pm

    I got this rate last week.

    The 12 month thru PCF has been at 2.9% for a few months now.

    Thanx for the responses.

  21. No Debt Guy on May 24, 2010 at 8:06 pm

    Kudos!! If that is the case you definitely did well.

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