Credit Reports and Scores: What They Are and How to Achieve a Good Credit Score
When you step into a Canadian airport to start your new life in Canada, your credit is zero.
As a new immigrant, it will take approximately six months to a year to prove to creditors that you are a reliable adult, able to pay your bills on time, and a secure person who can handle financial products.
You may want to buy a mobile phone immediately to earn credit. It’s obvious, and you already have one; however, paying your mobile phone bill provides valuable credit information companies can use to rate your credit score.
Other types of credit you need to know are credit cards, store credit cards, personal loans, car loans, student loans, mortgages, and lines of credit.
Credit is borrowed money, and Canadians borrow a lot of it. In a recent study, Statistics Canada found that 31% of those polled felt that their debts were too high, and 73.2% carried an outstanding debt or borrowed money. Learning how to manage your credit will empower you to bring or keep your finances into the green zone and maximize the value of having a high credit score.
Equifax and TransUnion keep track of your credit
When you borrow money, information on how you borrow, how much you borrow, and repayment goes to a credit bureau that keeps track of your credit information. Equifax and TransUnion are the two credit bureaus in Canada. These credit bureaus track your credit score, look out for companies, and address fraud. If a company wants to check on the viability of a potential client, Equifax is there, and if you encounter fraud, Equifax is there for you. You can contact them to have a fraud alert placed on your account or to check your credit score.
What is a credit report?
A credit report is made based on your credit history. It looks at the information sent to the credit bureau and analyzes how well you do. For example, if you have a credit card that you pay in full monthly, you are good at borrowing money and paying it back.
What a credit report can tell you
A credit report looks at how responsible you are at paying your bills.
When you contact Equifax or TransUnion for a credit report, they will look at all your credit information, positive and negative.
• How long have you had an account
• The amount of money you owe
• The timeliness of payments
• Missed payments and any spending over the credit limit
You’ll earn between 300 and 900 based on your credit and credit payments. 900 is a perfect score and 740-799 is very good.
The credit score you receive is based on:
• Your payment history
• How much credit you have available
• How long you’ve owned a credit card
• How often your credit was checked
• Types of credit
In many ways, good credit represents maturity and money sense. When a company, bank or employer looks at high credit scores in your credit report, you all can feel secure that you are a trustworthy person who pays your bills on time. The higher your credit score is, the more money you can procure, and the stronger your credit reputation is.
Good credit doesn’t just feel good. You can use it to earn a mortgage to buy your first home, another credit card, a store credit card, a private loan, or a line of credit, to lease a new car, or to start your own company.
How often should I check my credit score?
Every six months to one year, you should check your credit report to ensure that all the data collected is accurate and that no one else is using your credit cards or accessing your accounts. Fraud and identity fraud isn’t common; however, if it happens, checking your accounts regularly and fixing errors will ensure that your credit remains intact.
Damage to your credit score
Making a payment late or missing a payment will detrimentally affect your credit score, as will bankruptcy, debts sent to collection agencies and bank accounts closed for fraud or missed payments. If you find that you have a lower credit score than you would like, time and positive effort are on your side can correct it. However, adverse events like a missed payment are relevant for 6 or 7 years before they are removed from your score.
How to maintain a high credit score
Good credit is easy to achieve and maintain with a few simple strategies:
• Pay your bills on time.
• Make the minimum payments when it isn’t possible to pay the entire bill at once.
• Contact the issuer of your credit product immediately if you may not be able to pay and ask to work out an arrangement. Many lenders, for example, student loans or credit card companies, are amenable to such payment arrangements.
Overall, understanding your credit report and score makes you more financially literate. If you’d like to learn more on this topic, you can access free web content from the CREDIT REPORTS AND SCORES section of the Government of Canada website at http://www.canada.ca/money. Knowing what a credit report and credit score are is also the topic of the Financial Consumer Agency of Canada’s workshop on understanding your credit report and score. Feel free to download it to share with your community and clients to help all Canadians take control of their credit.
Equifax 1-800-465-7166 www.equifax.ca
TransUnion 1-800-663-9980 www.transunion.ca