Using credit wisely is critical to building a solid credit history. Your credit history is what banks and other creditors use to assess how risky it could be to lend you money. The way you have handled your debts in the past will impact a lender’s decision to lend you money as well as the rate of interest they will charge. If you need a loan or a mortgage, or you want to renegotiate a loan, you want to be able to choose your lender and negotiate your lending rate. It’s helpful to know what information lenders have found out about your credit history from your credit report.

What is a Credit Report?
A credit report is a history of how consistently you pay your financial obligations and is created when you first borrow money or apply for credit. On a regular basis, the companies that lend money or issue credit cards to you (banks, finance companies, credit unions, retailers, etc.) send the credit reporting agencies information about their financial relationship with you. For instance; when you opened up your account, if you make your payments on time, if you miss a payment, or if you have gone over your credit limit, etc.

How is Information in my Credit Report used?
In Canada, your credit history is tracked by two major credit tracking companies: Equifax Canada Inc. (www.equifax.ca) and TransUnion of Canada (www.transunion.ca). They keep records of: where you work, how much debt you have, whether you’ve paid your debt on time, and also how much credit you have available.

You will be assigned a credit score which is a numeric “snapshot” of your credit risk at a particular point in time. The score is a three-digit number that lenders use to help them make decisions. A higher score indicates that you are a better credit risk to a lender.

Every time you apply for a loan or credit, the credit granting institution will request a credit history report from one of these companies. You can also request a copy of the information that they have on file for you.  There are various on-line reports available for a fee but you can also request a free copy by filling out a application and mailing it to TransUnion or Equifax. (see their websites for more details).

What to Look for on Your Credit Report?
When you get the report, make sure the information they have is accurate. If it’s not accurate or up to date, contact the credit reporting agencies to correct the information.

Below is a list of the major sections found in your credit report:

• Personal Identification – Includes key identification information, such as your name, address, date of birth and Social Insurance Number

• Consumer Statement – Allows you to add a brief comment about any information in your report

• Credit Information – Provides details of your credit accounts and transactions and shows if payments are being made on time

• Banking Information – Includes information on your bank account and NSF cheque history

• Public Record Information – Contains information about secured loans, bankruptcies and/or judgments

• Third-Party Collections – Contains information about any involvement with a collection agency trying to collect on a debt

• Inquiries – Includes all organizations or individuals that have requested a copy of your credit report in the past three years

Please note: Details about your existing mortgage(s) may appear in your credit report but since mortgage information is not reported by all lenders, it is not used to calculate your credit score.

Who can Access my Credit Report
There are laws regarding who can review your credit report and for what purpose. A company or individual needs your consent and a legitimite business reason to obtain a copy of your credit report.

Each time a member of the credit reporting agency requests your report, the request is noted on your report as an inquiry and kept for 3 years. You can therefore see a record of who has requested your credit report and when.

Ways to Improve Your Credit Rating

• Pay all of your bills on time. Paying late, or having your account sent to a collection agency will reflect negatively on your credit score.

• Try not to run your balances up to your credit limit. Keeping your account balances below 75% of your available credit will also help your score.

• Avoid applying for credit unless you really need it. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you experiencing financial challenges, or that you are taking on more debt than you can actually repay.  However, it’s unlikely that your score will be affected if you are simply shopping for the best rate on your next mortgage or loan.

• Contact the credit agencies if you see anything on your credit report that is inaccurate.

Want to improve your credit rating by taking more control of your debt? Check out Sheila’s Debt-Free Challenge starting Monday April 27th.

Sheila Walkington is co-founder of the Women’s Financial Learning Centre.