Credit Basics

What is a credit report?

A credit report is a history of how consistently you pay your financial obligations.  Your credit report is created when you first borrow money or apply for credit.  Once established and on a regular basis, the companies that lend money or issue credit cards to you (banks, finance companies, credit unions, retailers, etc.) send the credit reporting agencies specific and factual information about their financial relationship with you,  This would include things like when you first opened up your account, if you make your payments on time, if you miss a payment, or if you have gone over your credit limit, etc.

The credit bureaus receive this information directly from the financial and retail institutions and retain it to help other lenders make decisions about granting you credit.  Your credit report contains all the information received from those who have lent you money in the past and provides a picture of your financial health.   For this reason, other lenders will request your report when they are determining whether or not to grant you a loan. Your credit report is a history that will help them determine what kind of lending risk you are; if you are likely to repay your financial obligations on time or not.

In addition to monitoring your activity on a regular basis, the credit also assign you a numerical  'credit score'.  This number ranges from 300 to 900 and anything in the 700s is considered to be good.  To qualify for credit, you typically don't want to be lower than 620, and definitely not lower than 600.

In general, the higher your score, the lower the probability that you will become delinquent on credit extended to you.  While it is true many lenders use bureau scores to help them make lending decisions, understand that each lender will base it’s decision on more than just the score alone.

What is used to calculate my score?

While each credit bureau is different, both rely on similar algorithms to determine an individual score.  Below is a breakdown of the factors used to calculate your score and the approximate weight each holds represented as a percentage:

Payment History (35%):Your credit score will be higher if you pay your bills on time, as opposed to making payments  late or not making payments at all.  If you have a poor payment history due to missed payments, declaring a bankruptcy or had a debt that went into collection then your credit score will certainly be lower.  The more time that passes since you have paid any outstanding debts the less heavily these delinquencies will be weighed.

Current Debt (30%):Just because you've been approved for a $10,000 credit limit doesn't mean you should use it all! The more credit you use in relation to the total you have available;  the lower your score will drop. TransUnion recommends keeping your credit card balance below 50% of your allotted limit and ideally around 30%.

Length of Credit History (15%):The longer you've been proving yourself as a reliable borrower, the higher your score will be. Someone with a lengthy track record of paying back debts is likely to have a higher credit score.

New Credit (10%): If you have a lot of companies viewing your credit report in a short period of time a red flag may go up at and consequently lower your score.  Regardless of the reasons, the bureaus see this activity as a sign of desperation indicating you may be in financial trouble and looking for a way out.  Try to avoid applying for every credit card application that comes your way.

Types of Credit (10%):Your credit score is partly calculated based on the types of credit and loans you hold.  These may include credit cards, retail accounts, installment loans, mortgages, and consumer finance accounts.  A healthy mix of all of these types will boost your score higher.

What is in my credit report?

Below is a list of the major sections found in your credit report:

·         Personal Identification- Includes key identification information, such as your name, address, date of birth and Social Insurance Number (SIN)

·         Consumer Statement- Allows you, the consumer, to add a brief comment about any information in your report

·         Credit Information- Provides details of your credit accounts and transactions and shows if payments are being made on time

·         Banking Information- Includes information on your bank account and NSF cheque history

·         Public Record Information- Contains information about secured loans, bankruptcies and/or judgments

·         Third-Party Collections- Contains information about any involvement with a collection agency trying to collect on a debt

·         Inquiries- Includes all organizations or individuals that have requested a copy of your credit report in the past three years

*Note: Mortgage information - Details about your existing mortgage(s) may appear in your credit report, however, this is rare and mortgage information is not used to calculate your credit score since it is not reported by all lenders.

How is information in my credit report used?

Credit information is gathered by credit reporting agencies called credit bureaus. There are two major credit reporting agencies in Canada: Equifax Canada Inc., and TransUnion of Canada. Governed by provincial and federal laws, credit reporting agencies store and maintain credit information about individual Canadian consumers for use by members of the credit reporting agency.  Members include banks, finance companies, auto leasing companies, credit card companies and retailers.

Credit grantors update individual credit reports regularly by providing information to credit reporting agencies about their customers' credit and payment activities.  This ensures that credit reports remain up-to-date and as complete as possible.  Other sources of the information contained in your credit report can include public records from courthouses across the country and collection agencies.

Who can access my credit report?

Federal and provincial laws are very specific regarding who can review your credit report and for what purpose.  A company or individual may only obtain a copy of your credit report with your consent or after informing you that they will be reviewing your report.  Additionally, an individual or company must have a legitimate business reason and a permissible purpose, as stated in government regulations, to obtain your credit report.

When you apply for a loan or credit card you are usually asked to complete and sign an application form.  An application normally includes written consent giving permission to the credit grantor to check your credit report.  In addition to your name, an application often asks for your date of birth, SIN number, your current address and a previous address if you've recently moved.  This is all information that helps to locate your credit report at a credit reporting agency.

Each time a member of the credit reporting agency requests your report, the request is noted on your report as an inquiry and kept for 3 years.  You can therefore see a record of who has requested your credit report and when.

A credit reporting agency may only provide a copy of your report when the request relates to the extension of credit, collection of a debt, housing rental, an application for employment or insurance purposes.  Since your credit report contains only factual information, it is important to remember that each of the companies requesting your credit report will interpret those facts in its own way to arrive at a decision.

How can I improve my credit score?

There are several things you can do to improve your credit score:

Pay your bills on time.If possible, set up automatic payments for all of your regular bills.  Many credit card companies also have a service that allows you to automatically pay your minimum balance every month.

Don't max out your credit cards.  If you have a big purchase to make, consider applying for a low interest line of credit or home equity line of credit (if you already own a home).

Choose your credit wisely.  While it may be tempting to receive a new iPod or 100,000 AirMiles as a reward for applying for a new credit card, don’t do it.  Unnecessary credit can wreak havoc on your credit score.  Try to limit all new credit applications to those you genuinely need.

Keep an eye on your credit profile.Make sure there are no erroneous charges and no fraudsters taking over your identity.  Both Equifax ( and TransUnion ( allow you to order your credit profile for free on an annual basis.  It's wise to order one from each company, since they feature different information.

Be patient. Unfortunately, it can take a while to see the fruits of your labour when it comes to improving credit.  If you follow the above steps on a consistent basis you'll have a clean credit report in no time at all!