What Is A Credit Report
In today’s webinar, Jeff Schwartz and Ben Allen look at what a credit report is, what types of information does it contain and more importantly, why you should monitor it on a semi regular basis and look for errors.
Ben: Okay. Hello, and welcome to our latest video, where today we’re going to be looking a little more closely at what exactly a credit report is, and the information that can be found there. I will also look at some of the differences between any good and bad information you may come across, as well as what you can do if you notice an error or a mistake on your credit report. So, we’re joined again by our executive director, Jeffery Schwartz, who’s gonna lend his expertise to the topic today. So, thanks again for coming and joining us today.
Jeff: Ben, happy to be here. As the credit world becomes more and more important to Canadians their credit report also becomes more important. So, this presentation is both timely and useful.
Ben: The million-dollar question is “What does your credit report say about you?”. That’s what your lenders, landlords, and some employers are asking when they check it. So, make sure you’re monitoring your credit report and that you understand what’s on there. There’s a ton of information on the credit report and yeah, it can seem a little overwhelming at first. So, that’s why we’re gonna take a look at some of the differences between credit reports, credit scores, credit ratings, and what they all mean. So, we’ll turn it over to Jeff who’s just going to introduce the topic today and then we’ll get into the details.
Jeff: Excellent, and that’s right, Ben. Far too many people find mistakes on their credit report and they can cost you money. If there’s a mistake, dispute it. Gather any documents or evidence you have, such as statements or bills and we’ll go over the dispute process a little bit more later. But I’ve got a question for you. When was the last time you even looked at your credit report or have you looked at it at all? The credit reporting bureaus and creditors are not infallible and they make mistakes too, and if those mistakes reflect poorly on you, they’re going to cost you money by way of higher interest rates, higher insurance premiums or worse, being declined for some opportunities. So firstly, check your credit report and secondly, if there are any errors, dispute them and get them corrected as soon as possible and we can get into more of this later on but for now, it’s important to make sure that whatever information you have on your report, it’s correct.
Ben: Right, so we’ll start with the simple question of “What is a credit report?”. Essentially, your credit report, or your credit file as it’s sometimes called, is your history with using credit. It’s a seven-year, or longer in some cases, history of all your loan or credit accounts. Those are accounts are known as tradelines and they usually fall into one other following categories that you see there. Each trade line is listed as either R, I, O, or M, or in this case, revolving, installment, open, and mortgage, depending on the type of the credit that it is. So, credit cards would typically be a revolving account. You have a limit. You can borrow up to it and then you can make payments and borrow within that limit as much as you want. Installment loans, or credit loans that are paid on a monthly basis such as a student loan or car payment, that would be with the “I” Signifies there. Open credit or “O” credit sometimes is also referred to as service credit and they’re typically for bills or utilities like a cell phone contract, hydro, natural gas, and obviously, there “M” would be for a mortgage on the home or a loan for a home.
Jeff: There’s also some important and other information that gets reported too and that’s what’s known as a narrative. Narratives are any type of good or bad information. Paying as agreed or showing a strong payment history would be an example of a good or non-derogatory narrative. Late payment, collections or any other bad, uncollectible debts would be considered bad or derogatory information, but we’ll cover that a little bit more in depth later in the video.
Ben: Okay, so, next we’ll actually get to the credit reports themselves and this might be surprising for some of you, but you actually have several credit reports that are available to you and you might actually have several credit scores as well. Does that sound confusing? Well you’re right, but it was never meant to be an easy-to-read document. When credit reports and credit scores were first developed to gauge a consumer’s creditworthiness, they were never designed with our comprehension or consumer comprehension in mind. They were meant for banks. They were meant for lenders. It’s only recently that credit reports and scores have become a major interest for Canadians but that’s actually a really good thing. Knowledge is power here.
Jeff: So true Ben, and that’s why it’s vital to make sure that all the information is correct. The credit bureaus aren’t in the business of calling consumers and verifying if the information they have on file is correct. That’s your responsibility. You need to make sure that whatever credit report you get, has the right information and the information is the same on both the credit bureau reports. There are two major credit bureaus in Canada but the way they collect and retain information can be done differently. So, if there’s a mistake on your credit report, then you need to follow the dispute process of that credit bureau. You can fill out a form online. You can call them or make your request by mail to either the lender or the credit bureau. If the bureau or bank verifies that the information was a mistake, they have to remove it and as mentioned earlier, including a copy of a credit card statement or a final bill can help you verify that error. If the error can’t be verified, then the information has to stay put, but you can always include a personal statement to try and explain what happened. When we took a, take a look at an actual credit report later, you’ll get chance to see the consumer statement section and we’ll explain a bit more about why you might want to use it if there’s an error on your credit report.
Ben: Right, so, the first step like we mentioned, is to get your credit reports. You’d be surprised how many people put that off, but getting it is actually pretty easy and you have more than a few options. So, obviously free is best and if you’re entitled, you know sorry, you’re entitled to your credit report, or sometimes it’s called a consumer disclosure, for free once per year through the mail. Also, if you head over to the online consumers disclosure website you see there from Transunion, you’ll not only be able to download the mail-in request form. You’ll also be able to access your credit report online once a month absolutely free, but this is just the report. There’s no score included. If you head over to Equifax CA, they also have a free option to get your credit report but you’re gonna have to do a little bit more digging to find it. The free downloadable mail-in request form is there, way at the bottom. So, scroll down way to the bottom of the page and in the teeny fine print there in section 4, you see a link to the request form, but that’s only the first step. Jeff, what’s next?
Jeff: So, once you’ve downloaded these forms, all you need to do is fill them out and include two copies of photo ID and mail them off to the address on these forms. In a few weeks, you’ll have your credit reports. If you don’t want to wait that long, as many of us want instant gratification on these things, head over to one of those credit monitoring websites you see there, that provide access to free credit scores and reports. Just keep in mind that they aren’t providing these services out of the goodness of their hearts. These sites are essentially loan brokerages, meaning that after they give you your credit scores, they’re also going to recommend loans and credit cards that you’ll likely be approved for. So, take that with a grain of salt, but that doesn’t mean these sites are necessarily a bad thing. For instance, you might be interested in a rewards or cash back credit card. Sites like these will let you search for that type of card with the perks that you want, while also letting you know the likelihood of getting approved for it, and if you’re really in a hurry and you want your credit reports and scores today, Equifax and Transunion, through their websites, provide an immediate option, but you’re going to have to pay for that.
Ben: So, if you have the time, do it through the mail. If not, you know, these are great resources to kind of monitor your credit. So, now we’ll take a detailed look at all of that credit information that’s on there. As we saw earlier, there are many versions and many different packages of credit reports and credit scores that you can get, but they should all have the same information. It might just be laid out a little bit differently. Here, we see the paid version of an Equifax credit score that you can get online today. The first thing you need to do is make sure that all the information is correct and yes, spelling counts here. So, double check that all your personal employment information is correct. Now, the employment information or addresses might not be up to date, but you should definitely make sure that those were addresses that you lived at and that those were indeed your places of employment. If you see an address that you don’t recognize, it could be the sign or could be a sign of identity theft. Identity thieves often change your address on Canada Post website, and then apply for credit and loans in your name, and that ensures that you don’t get the bills right away until long after the damage has been done.
Jeff: Yeah that could
Ben: Where do we start here
Jeff: That can be a real challenge if someone steals your identity for sure. It’s getting easier and easier for them to do that. So, with that said, let’s start with your personal information. Is it correct? Do the same for your employment information as well. If one day, you have the misfortune of being a victim of identity theft or if a card is used fraudulently then you’ll want to make sure you put a fraud alert or statement on your credit report. Those would go here, just under the consumer statement portion. A fraud alert will be seen by any lenders you apply with when they do a credit check and if they see afraid alert on it, they’re required to call you and get your verbal confirmation that it was indeed you that requested the loan or credit card. For Equifax, a fraud alert can be placed on your report for free for up to 90 days. At Transunion, you’ll have to pay six dollars for a fraud statement to be added, but it will stay there for six years
Ben: Right, and with identity theft crimes rising year-over-year, I’d say that’s probably six dollars well spent. Anyways, next on your report, you might see the spot for that consumer or personal statement. These are best used when the mistake or an error on your credit report can’t be removed. They can’t verify the information you believe the way. That might happen if a lender or bureau, you know, doesn’t have the correct document saying that you paid late or something like that. So, in either case, a personal statement allows a consumer to place up to 140 words on their credit report and try and explain the problem. So, for instance, maybe the debt or the late payment was caused by a layoff or the result of a divorce. So, it might try, or might help to try and explain why you fell behind in the consumer statement. However, consumer statement might be completely overlooked by some lenders, but if you feel you have something worth saying, then that’s the place to do it. Just try and keep it short and concise. So, we’re finally at the credit information part. You’ll see some tricky wording in there in that fine print. It’s important to understand what that means. So, “all credit information is only held in the database for not more than six years for the date of last activity”. So those last two words are the tricky bit. “Last activity”. The last activity on your tradeline or an account on your credit report is either the date of the last payment that you made, or the date that you last verified the debt was yours. So, well let’s say if you made your payment on an account that went into collections in January of 2013, that delinquent account will stay on your credit report with the negative credit rating until January 19’, unless. There’s always an unless or a button when we talk about credit. Unless, between then and now, you have verified that account was yours. So, what that means is that you either acknowledge that you’ve received the collection agencies letter, or on one of their recorded phone calls, you gave the collection agent your name and your date of birth. If that’s the case, the account will be re-aged, which means that the six-year clock will start again. So, stressful stuff, I know, but in the simple credit report we see here that the credit report or this consumer has three credit cards. They also have an installment loan, so it’s probably a line of credit. We also see things like contact number for the lender under the credit information there, what kind of an account it is. We also see, you know, what the credit limits are, what the balances are, if there’s any past due amounts. That sort of thing. So, there’s a lot of information, sort of, on each account and that’s what the lenders are looking at. There’s also payment history information on there and that’s really important. Such as you know, “How many months has the account been active?”, “Are there any late payments?”. So, in this case, the Royal Bank visa there has been reported for 29 months. We also see that there’s been no late payments. You see there, no late payment 30 days. No late payments 60 days but, you know, (13:02) we also see that this is an installment ? on down here is pretty much maxed out. This account is 97% utilized and as we’ll see next, utilization or how much of your balance that you’re carrying is a really big part of the credit score calculations. If you take a look at that wheel there, you see a full 30% of your credit score depends on the amount that you owe. So, anytime you’re carrying a balance of 30% or more over your limit, you actually start to hurt your credit score. So, certainly when cards get maxed out and balances continue to increase, month after month, credit scores will actually start to decrease. As we mentioned in our other video, we did prior to this, another big factor of the credit score is payment history, 35%, and that’s followed by how long you’ve had or used credit. The length of credit history. So, essentially, you could say that your credit score is a three-digit representation of your credit report. Scores typically fall between 300 and 850 but you can reach 900, but like we mentioned in our last video, if you‘re new to Canada or if you’re only 18 years old, you have no credit cards or no loans in your name, you could be a zero. When zero isn’t actually a bad thing. It just means there’s no experience there. The bottom line is that all the information on your credit report is what determines your credit score. Nothing else. Not your income, not your assets, not the kind of car you drive. It all comes down to that wheel there. So, you need to make sure that the information on both your Equifax and your Transunion credit reports are the same. Now, both credit report bureaus say that they calculate their scores based on some top-secret proprietary algorithms and to some extent, that’s true. So, you’re probably gonna have, you’re probably going to have a few different credit scores out there, depending on who’s looking and where you get it, but they should still be close. I’d say that anything higher than maybe a 20-point difference is worth looking into. There might be a mistake on one credit report that’s not showing up on the other, so be sure to check both credit reports and make sure that they both have the same information. So, we’ve got a little bit more in detail kind of what information is on the credit report. So, what kind of information is on a credit report. Well, like most things in credit, it depends, and yeah, there’s a lot of info that can be on there and some of it can be a little confusing to understand. Most of that information will be written in some kind of a code, like you see there, but don’t worry. You don’t need to study every code that’s there but you should recognize that some are good or a neutral, and others will have a negative effect on your credit report or your credit score. Those are all considered narratives, which we mentioned earlier, but there may also be comments or even credit ratings on your accounts. Now, ratings are very important to understand and if you’re trying to fix or repair your credit, we’ll cover them more in detail and it’s a good idea to have an understanding of what the different credit ratings are, but you should also understand that there are those narratives and those comments, and they’re considered by lenders as either derogatory or non-derogatory. So, narratives or those codes that you see there used on an account that signifies maybe a garnishment or that the account was included in a bankruptcy. Those would be the derogatory types of information lenders would look for. When you get to the other information, you know, you might be making payments through a consumer proposal or something. That would be the derogatory information that you need to watch out for. So, now we’ll let Jeff take a look at credit ratings and sort of explain what the different numbering systems mean. If you start seeing letters and numbers on your credit report, you can start understanding, you know, “What is this credit rating mean?”, “What does the lender think about this rating?”. So, Jeff, can we just take a quick look at credit ratings.
Jeff: Absolutely. So, we’ll dive into this in a little bit more detail, but like Ben mentioned, those little numbers can have big effect on your credit score. So, first in credit ratings are a number often used with a corresponding letter to the type of credit. So, “R” for revolving credit, “I” for installment credit, “O” for open credit lines, and “M” for mortgages. On the number side, “1” is the best rating and signifies that you pay on time or as agreed. The higher the ratings go, the more impact they have on your credit report. So, 2-5 shows that you are late or past due. So, 2 equals 30 days behind, 3 equals 60 days behind, and so on until 5 which is 150 days behind. If your debt hasn’t been sold to a collection agency by 150 days, it will be sent there shortly. So, do whatever you can to keep it from going into collections. There’s currently no rating for 6. There are only 9 credit conditions, but the bureau’s say that it’s being reserved for future use. Now we’re getting into the more severe ratings, 7, 8, and 9. 7 essentially means that you needed help, whether through a consolidation or some other specialized program. 8 typically involves property, such as a car being repossessed, which brings us to 9 and that’s the worst rating possible. Accounts rated as a 9 show up on a credit report as a bad debt. It was uncollectible and was sold off to a collection agency or it was included in a bankruptcy or is currently being paid through a consumer proposal. A 9 is the worst rating you can have and as such, it’s going to impact your score the most.
Ben: Right, so, letters being the type of credit, numbers being the ratings, and the higher the number you see, the more of an impact or negative impact it’s going to have on your credit report. So, if you did see some of those ratings, it’s important to also understand, you know, “How long are those going to be on my credit report?”. So, once you understand what’s on your credit report, what the ratings mean, and you can be assured that all the information on there is correct. That’s the question that I give in my workshops. How long is this collection account going to be on my credit report? How long is this late payment going to be there? Well, by now, we should all be familiar enough with the credit reporting system to know that my answer is going to be, “It depends”. I know it’s not what you wanted to hear but it depends on the credit bureaus. They each report things differently. However, most information will be therefore 3 to 6 years. That’s a pretty good general rule of thumb. So, late payments, bad debts, things that went to collections, for example, are going to stay on your credit report for 6 years. However, Transunion starts that six-year clock from your first delinquency, and that means the day you fell behind. The day you were late. Whereas, Equifax looks more towards the date of last activity, which we mentioned earlier. When you made your last payment or when you verified the debt was yours. So, there might be a few months in between there where the information will be purged from one report before the other and could take a month or two for it to be, you know, removed from the other report. Inquiries on the other hand or credit checks. Hard credit checks or hard inquiries. Not soft ones, are retained for three years at Equifax and six years at Transunion and that’s really not a big problem, as long as you aren’t constantly applying for credit because too many hard credit checks too close together can actually start to bring your credit score down. It kind of looks like you’re suddenly looking for, you need more credit. Specialized programs like restructured payment plans or consolidation programs where interest rates are reduced, those are only reported to Equifax for two years as well as Transunion. They just remove the accounts after two years. They don‘t actually report it as a consolidation program. So, a little bit different there. Consumer proposals on the other hand are reported as both a 9 and a 7, so that could be a little confusing but what that means is that while you’re making payments to the consumer proposal, those accounts are rated differently. Once your consumer proposal is finished, however, the 9 ratings are lowered to a 7, which is a little bit better than, you know, a big bad full-on bankruptcy. Bankruptcies, depending on the province and the type of bankruptcy that it is, they’re gonna stick around on your credit report for 6 or 7 years after you’re discharged, and the discharge might take up to 21 months in some cases and if you’re unfortunate enough to go bankrupt the second time, you’re going to have those 9 ratings this time for a full 14 years. So, keep in mind, you know, all the information will eventually be purged. Newer information is obviously weighted a little bit heavier than some of the older information. So, I think now is a really good time just for Jeff to, kind of, run us through a recap on credit. There was a lot of information to go through, so we’ll just, kind of, look at it quickly, briefly here.
Jeff: You know, Ben, there’s a ton of information in this. The last video that we did and this one, but I can’t tell you how important it is these days. So, even if you have to revisit these videos to go through them a second and a third time, there’s a tremendous amount of valuable information that ultimately is going to get you better informed and ideally, if you build your credit to a point where you’re going to get best rates and terms across the board, it’s actually going to save you money. So, let’s go to that recap now. If you’re looking for more of a breakdown of credit scores or how to build your credit responsibly, be sure to check out the video that we did last time on establishing credit in Canada but for now I think we should do quick recap of what a credit report is and what’s on it. So, a credit reports your credit history. It helps creditors identify your likelihood of repaying if you borrow from them. It’s as simple as that. Credit ratings are an indication of your payment history and your payment record. Credit scores are a numerical representation of your credit report, factoring in all the elements that make up your score.
Ben: Right, so, sometimes people use these almost interchangeably. Credit reports, credit ratings. Credit scores. They’re different things and now hopefully you understand little bit more about what they mean in terms of your lending risk. So, if you wanted to talk more with us or you wanted to ask some questions, please feel free to reach out to us offline. We’d be happy to answer any questions that might find their way to the email address that you see there, and if you’re a bit of a self-learner, be sure to check out the financial resource page of our website and you never know. The answer to your question could just be a click away and of course our counselors would be happy to answer your questions as well. So, please feel free to reach out to them at the number you see there. I’d also like to take this opportunity to thank Jeff for being here and lending his expertise to this often-confusing topic and thanks again. I’m sure he’ll be happy to join us next time as well.
Jeff: Thanks Ben. Great presentation. I’m hopeful that if any of the listeners haven’t pulled their credit in a while or even at all, will do so now. Thanks again.