By Stéphane Desjardins
A credit report plays a huge role in our lives. It’s crucial not to neglect it.
The credit report is a key component of our personal finances. Compiled by two American multinationals, Equifax and TransUnion, it gathers sensitive personal information, particularly financial information. It includes a rating, the credit score, which often has a disproportionate impact on our lives.
For example, a poor credit score will result in higher interest rates on our loans. This makes it more expensive to buy a house, a car, furniture, and so on. Credit reports are consulted by employers, insurers, landlords, lenders, and suppliers of all kinds.
As a result, many people have difficulty finding housing (and even end up homeless) or getting a cell phone because of a poor credit report. Insurers refuse clients or impose higher rates. Employers consider a poor credit report masks immaturity or a lack of reliability.
Essential Information
Your credit report is affected by the lenders, suppliers, and merchants you deal with. You do not control this information.
It therefore records your financial history as well as confidential personal information: contact details, social security number, passport number, driver’s license number, bank account number, credit card information, loans, lines of credit, various debts, credit history, crucial information (bankruptcies, judgments, lawsuits against you by companies, unpaid fines), indemnities for your business if you are a contractor, your employer’s name (and previous employers), and current and previous positions.
If you pay your bills and repay your loans on time, this is noted on your report. Any delay of more than 30 days is also recorded, even for an amount as low as $3.29. Hence the importance of always paying off your credit card balances before the statement due date…
It also includes explanatory notes, which can, for example, reveal that you have been a victim of identity theft or that you owe your landlord nothing, even if they claim otherwise… Finally, it lists the names of the people or organizations that have accessed your file and the dates.
How Long is it Kept?
Once entered, information is kept for varying periods, depending on whether it is positive or negative.
For example, positive information includes commitments you are fulfilling (bills, rent, on-time payments) and information about loans (types, amounts, due dates, repayment status, active or canceled credit cards).
They are kept for between 10 and 20 years! That’s why you should always keep your oldest credit card, even if it means making a small monthly transaction.
As for negative information, it depends. We’re talking about 3 to 6 years for inquiries and verifications (for example, from lenders, cell phone companies, or landlords). For bankruptcy or a judgment, it’s 7 years.
What is it Used For?
Even though they have their own criteria, lenders and service providers use your credit report to predict whether you’ll meet your financial obligations and make your payments on time.
They consult it for your transaction history, which reflects your spending habits. This allows them to assess the risk you represent.
And the score?
Reviewed periodically, the three-digit credit score (between 300 and 900) is determined by a secret algorithm, the main factors of which are public.
The more responsibly you use credit, the more points you get. A score of:
300-559 = Low
560-659 = Average
660-724 = Good
725-759 = Very good
760 = Excellent
Normally, if your score is above 660, you have no problem obtaining credit. Those with 800 and above have significant negotiating power. No one reaches 900.
The Main Factors:
Credit used versus available credit (30%): it’s best to use 50% of the limit on each card or line of credit;
Credit history (15%): usage dates of the oldest and most recent accounts (loans, credit cards, bank accounts);
Credit combination (10%): Lenders appreciate it when you manage different types of loans effectively (mortgages, lines of credit, credit cards, personal loans, various financing options);
Credit inquiries (10%): Any credit check or other inquiry (loans, credit cards, suppliers, landlords, consumer financing).
Maintaining a high credit score: To maintain a high credit score, avoid repeatedly topping up your credit card, as your score will decrease even if you bring your balance to zero each month. If you top up your line of credit, but meticulously make your monthly payments, you lose points.
When shopping for insurance or a service like a cell phone, compare offers online before applying, as multiple checks recorded on your file lower your score.
Having too many credit cards hurts your score, as does not making a transaction on each of your cards every month. Limit yourself to two or three cards, and avoid merchant cards, which have exorbitant interest rates.
It’s especially important to borrow according to your ability to pay, not based on the credit you’re offered, even if approved. And limit impulse purchases.
On the other hand, some people believe that not having a credit card or never having borrowed money results in an excellent credit history. Wrong. On the contrary! It’s better to make all your purchases with your credit cards and pay off your balance each month before the due date. Plus, you get bonus points! And some cash-back cards reduce your balance.
Errors
Credit reports often contain errors. Some consumers suffer greatly as a result, despite their otherwise impeccable credit history.
In 2021, approximately 34% of Canadians had errors on their credit reports, according to the Consumers’ Union, and up to 42 million Americans, according to the American Bankruptcy Institute. According to the TV program 60 Minutes, this is the case for one in five Americans. Some 79% of Canadian credit reports contained errors, according to the Public Interest Research Group.
In 25% of cases, these errors are significant enough to affect credit scores, CNN reported in 2022. Some people are thus denied apartments, insurance, rentals, or car purchases, or end up paying higher interest rates without knowing why.
While most errors are factual (address, employer’s name) or involve an outdated court order, some stem from identity theft. The report then shows debts financed without the consumer’s knowledge, often in arrears.
How can you correct this? Request a free copy of your report every two years from Equifax or TransUnion: Equifax, 1-800-465-7166 or in person; TransUnion, 1-800-663-9980. Forget about the paid subscription; it’s unnecessary (many financial institutions offer it free of charge).
If you find an error, demand a correction (preferably by registered letter) from the lender or supplier. If they refuse, or if the error persists after a month, you can request that a note be added to your file with Equifax or TransUnion.
The problem is that it is very often difficult to get your file corrected. “Equifax and TransUnion customer service is regularly criticized for its inefficiency, making the process even more laborious,” notes the Consumers’ Association of Canada.
If you are dissatisfied, file a complaint with the Office of Consumer Protection (1-888-672-2556) or the Commission d’accès à l’information du Québec (1-888-528-7741).
Security Measures
If you have been the victim of a personal information theft, you can request that Equifax and TransUnion set up a security alert free of charge.
A more effective protection is to request a temporary freeze, or security freeze, from Equifax or TransUnion. This is free and has no effect on your credit score.
Once activated, it blocks all access to your file. Any potential lender or supplier will have to call you. However, employers, employment or collection agencies, government agencies, landlords, and insurers will retain access. Of course, you will need to have it unfrozen as soon as you apply for new credit.
Photo at the top: John McArthur
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