As the Pandemic took hold of our economy in March and April, there was media, corporate and political talk about protecting the credit of those affected. This talk has passed from the public discussion. It should remain a priority for us.
Credit reporting refers to a system that provides information about the ability of individuals and businesses to borrow and repay borrowed funds. In Canada, there are three independent, privately owned credit reporting agencies: Equifax, TransUnion, and Dun and Bradstreet. Dun and Bradstreet reports for commercial accounts, while the two other agencies are best known for consumer reports.
When you have financial dealings with Canadian businesses, they typically share the results with the credit reporting agencies. What story does your credit report tell? Are you invisible? You may have minimal or no credit. Your credit report says very little about your ability to borrow or repay. The story of your credit report may be a long, tragic tale. It is pages long and has large credit balances, missed payments, and closed accounts. Is your story boring? Your credit report shows one mortgage and a small collection of well-paid credit cards and credit lines in keeping with an average middle-class Canadian lifestyle.
The purpose of a credit report is to help credit grantors assess your creditworthiness. How much can they lend to you and have confidence that you will pay them back? In recent years, Canadian privacy laws have strengthened. There are strict rules over who can see your credit report. You need to provide written consent. If you are interested in borrowing money to purchase a home, a car, home renovations, or have credit available in the form of credit cards or credit lines, lenders will ask for consent to view your credit report.
An entire conversation may take place without you knowing it. That credit card company you dealt with three years ago? They have input. The cellphone company that you cancelled last month over a fifty-dollar dispute? They contribute to your credit score. The mortgage you had years ago and paid off? It may not have been removed from your credit, although the bank is legally obligated to do so.
Although it is important for the credibility of the system that the information is accurate, it makes mistakes from time to time. The credit report about you may not reflect the entire story about your creditworthiness. The good news is that you can influence the information presented in your credit report. Here are four ways you can improve your credit rating:
Get a copy of your credit report
You have a right to see what the credit reporting agencies are saying about you. Please visit https://www.consumer.equifax.ca/, https://www.transunion.ca/, or a site like https://www.creditkarma.ca/ which combines information from the two main consumer credit agencies. Also, visit https://www.dnb.com/ca-en/ if what you are interested in is a business credit report. You are entitled to request a free credit report by mail. Or you can receive an online report for a small cost.
You may have heard that frequent credit checks affect your credit. Checking your own credit does not count against this, so you can and should check your credit regularly.
Understand your credit report
When you get your report, you will see a prominent number at the top of the first page. This is your credit score. The number will range between 300 and 850. Higher numbers are better. This number can vary between the reporting agencies and from month to month, but it tells the story of your credit history. Ideally, you want a score that is 700+. If your credit score is below 600, you probably already know that you have financial trouble.
Your payment history, amount of debt owed, the variety of sources of credit, and length of credit history affects your credit score.
Comb through the report for accuracy. Start at the top with your name, social insurance number, and address. Go through the report line by line, checking accounts, account numbers, balances, payment history, and other details. If you are not sure of the details, contact your mortgage broker who has training and experience in reading credit reports.
You may dispute errors on your credit report and ask that they are removed. The credit bureaus will investigate your claims and respond within 30 days.
Improve your credit report
Pay bills on time. If you use online banking, pay bills three or more business days before their due date. This gives time for the bank to process payments and transfer to your creditor. Consider using automatic payments from your bank account if the monthly payment is always the same. If you plan to be away, arrange for payments to be made regularly.
Do you avoid using credit? This is fine, but it means you do not have a credit reputation that will aid with future borrowing. This can be life-changing when you require borrowed funds for your home purchase or emergency.
Use your credit from time to time and promptly make the payments. Do not cancel all the credit cards and credit lines, even if you rarely use them. The proportion of your credit limits that you use can affect your credit score. If a potential lender views your credit report, they do not want to see that you are using all available credit. A good rule of thumb is to use no more than 30% of your credit limits from several sources of credit. When you need additional credit ‘room’ at the time of a large loan or mortgage, you can pay and cancel your low-balance/zero-balance credit sources.
Another tip is to do your credit shopping at one time rather than spread out over a longer time. A concentrated period of home or car shopping for example does not affect your credit as much as extended credit-seeking.
Breath life into your credit report
Are you struggling with debt and need to repair your credit reputation? Depending on the extent of your credit crunch, various solutions are available.
You might consolidate your debt into a mortgage, line of credit, or low-interest credit card. Before you rush to your current lender, make a call to your mortgage broker. They can approach several lenders on your behalf in ways that do not compromise your current position.
If your credit score is low or you do not have Canadian credit, a first step might be to get a secured credit card. You deposit a sum in an account and your credit card has a limit of the same amount. This helps to establish or re-establish your credit reputation.
Are you in an unpleasant situation and you do not know which way to turn? Seek the advice of professionals who offer strategies and do not have specific products to sell. Onerous commitments and more spending can make things worse. Please speak to me if you would like information that will help you make the best decisions for you and your family.