Building a good credit history is important to your financial health. Along with millions of other Canadians, you have a credit history that is kept on file by companies called credit reporting agencies.
This information is used to create your credit report and credit score. These are some of the main tools lenders use when they are deciding whether they will lend you money and how much they will charge you to borrow it. Employers and landlords may also use credit reports to get a sense of your reliability.
Knowing what is in your report is important! If you have a poor credit history, it will be harder for you to obtain a credit card or loan. You could also pay more to borrow money. It could even affect your ability to rent housing or to get a job. You could also use your credit report to check for identity theft.
What is a credit report?
Your credit report is a summary of your credit history. If you have ever used a credit card, taken out a personal loan, or used a “buy now, pay later” offer, you have a credit history. Your credit report is created when you borrow money or apply for credit the first time. Lenders send their information about your accounts to credit reporting agencies.
Your credit report also includes factual information that is available in public records such as bankruptcy. Your credit report also contains factual information about your credit cards and loans such as:
- when you opened your account
- how much you owe
- whether you make your payments on time
- whether you go over your credit limit
Mobile phone and internet accounts may also be reported even though they are not credit accounts. Chequing and savings accounts that have been “closed for cause” due to money owing or fraud committed by the account holder can also be included.
What is a credit score?
A credit score is a three digit number that is calculated using a mathematical formula based on the information on your credit report. you get points for actions that demonstrate to lenders that you can use credit responsibly. You lose points for things that show you have difficulty managing credit.
In Canada credit scores range from 300-900 points. The best score being 900 points. Lenders and credit reporting agencies produce scores under different brand names, such as Beacon, Empirica, and FICO. Your score will change over time as your credit report is updated.
Businesses use your credit report and credit score to determine how risky it would be for them to lend you money. It is up to each lender to decide on the lowest score you can have and still be able to borrow money from them. Lenders may also use your credit score to set your interest rate and credit limit. If you have a high credit score, you may be able to negotiate a lower interest rate on loans, which could save you a lot of money over time.
While they are very important, credit scores are usually not the only thing a lender will look at. Often, they will also consider other factors, such as your income, job stability, and any assets you may own.
This may be a good time to review your credit report and credit score and get a handle on your financial health by contacting one of Canada’s major credit-reporting agencies: Equifax Canada and TransUnion Canada.