Understanding Credit: Your Credit Report

For the month of June, I (Brenda) have put together a blog series called Understanding Credit. The material is strictly credited back to the contributing source, Financial Consumer Agency of Canada, on the CRA website. Though we (Karen & I) have been studying this for a number of years, now, we still find that there is always something new to learn; we hope that you will take the time to join us each week as we look at the different aspects of Credit.

Who Creates Your Credit Report & Credit Score?

There are two main credit bureaus in Canada, Equifax & TransUnion.

These are private companies that collect, store and share information about how you use credit. They only collect information from creditors about your financial experiences in Canada. Your credit report is created when you borrow money or apply for credit for the first time. Lenders send information about your accounts to the credit bureaus, also known as credit reporting agencies.

Your Credit Score:

Your credit score is a three-digit number that comes from the information in your credit report. It shows how well you manage credit and how risky it would be for a lender to lend you money. Your credit score is calculated using a formula based on your credit report.

Note that:

  • you get points for actions that show you use credit responsibly

  • you lose points for things that show you have difficulty managing credit

  • your credit score will change over time as your credit report is updated

It's not possible to know exactly how many points your score will go up or down based on the actions you take. Credit bureaus and lenders don't share the actual formulas they use to calculate credit scores.

Factors That Affect Your Credit Score Include:

  • how long you've had credit

  • if you carry a balance on your credit cards

  • if you regularly miss payments

  • the amount of your outstanding debts

  • being close to your credit limit

  • the number of times you try to get more credit

  • the types of credit you're using

  • if your debts have been sent to a collection agency

  • any record of insolvency or bankruptcy

Lenders set their own guidelines as to the minimum credit score you need for them to lend you money. If you have a good credit score, you may be able to negotiate lower interest rates. However, when you order your credit score, it may not be the same as a score produced for a lender. This is because a lender may put more weight on certain information when calculating your credit score.

Next week we will look at who can see your credit report and how is it used.

Source: www.cra.ca (Financial Consumer Agency of Canada)