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Dealing With a Credit Crisis

Every day, Canadians purchase goods or services using credit. The decision to extend credit is made by a "credit grantor" such as a bank or store. Most often, this decision involves reviewing your credit file, which is obtained from a credit reporting agency. With your permission, credit grantors review your credit file to determine your credit history and assess your credit-worthiness. Your credit rating is a measure of your credit-worthiness or in other words, your record of borrowing and repayment. Without a credit rating, few institutions will lend you money. Governed by provincial laws, the credit bureau - the clearing-house of information on consumers' use of credit - provides a credit history, which is a list of facts about how you handle debt. This information is gathered from financial institutions, retailers and other lenders. Most of your credit information remains on your file for seven years. In addition to negative information, positive information is also reported on your file. Here is how to build a good credit rating: Pay your bills promptly, especially credit cards. Borrow only what you need and what you can afford. Try to pay off loans on time and as quickly as possible. Not only does it help your credit rating, you also save valuable interest costs. Lenders can only look at your credit file if you give them permission, or if they notify you in writing that they will be getting a copy of your credit report. In addition, the reporting agency has to be satisfied that the person who asks to see your file has a good reason. Someone who is contemplating lending you money, renting you an apartment or giving you a job, would all qualify. What is a credit report? A credit report shows your credit payment history. When you apply for credit, a business will use your report to assess your application. They want to know if you’ve repaid your debts on time in the past, in addition to your credit responsibilities today. Reporting agencies may keep the following facts about you on file. Information about employment, residence, age, social insurance number, your spouse's name, how long you have had accounts and your payment history (number of late payments, etc.). They also record public records, such as bankruptcy, collections, judgements and criminal convictions. Credit information, courthouse records and collection accounts remain on file for six to seven years (depending on the province) from the date of the last activity reported on the credit file. For example, if the last payment on a bad debt was made December 1, 1995, the date for the file to expire is December 1, 2001. It’s important to note that just because you pay an account in full doesn’t mean it will be removed from your credit report, although the account will show as paid. This account is still part of your payment history. Know Your Credit Rights As a consumer, it's your right to know your credit rating. Credit can be denied based on inaccurate or insufficient information. You may want to check your file if you aren't sure of your credit rating, if you are refused credit or if you plan to apply for a large amount of credit such as a mortgage. You can get a copy of your credit report through one of the many credit bureaus across Canada for free or for a nominal charge. Here are some guidelines: Contact your local credit bureau, which you can find in the yellow pages. Call to find out how you can review your file. You'll be asked to provide identification to ensure the confidentiality of your file. A written report may take two to three weeks. If you obtain a copy of your report and find an error you can dispute it by filling in a consumer dispute form. If you can offer written proof, your file will be changed immediately. If you can't supply written proof, give the facts to the credit bureau. What happens next depends on where you live. Each province has its own legislation relating to credit bureaus. The credit reporting agency will take the information and check it with the credit grantor (i.e. anyone who grants you credit), collection agency, or public record source. If the investigation finds an error was made, the agency will adjust your report and send a revised copy to any company who has recently requested it. If you and the credit grantor disagree on any information, you need to resolve the issue with the credit grantor directly. But, you can notify the credit reporting agency that you disagree with the information and a statement to this effect will be included in your credit report. If you feel an item on your credit report needs further explanation you can send a statement of no more than 100 words to explain why an account was paid late (i.e. loss of job, illness). This information will also be included in your report. Frequently Asked Questions What exactly is a credit file? What information does a consumer credit report contain? How is this information gathered and who keeps it? Who can access my credit file? What is an "inquiry"? How long does a credit bureau keep information in my credit file? Why is my credit file important? What is a rating? Does my file tell me how I will be rated? How can I make sure my credit file information is accurate? How can I get a copy of my credit report? How can I correct an inaccuracy in my Equifax credit file? What if I am still not satisfied with an item on my file? Why is some information on my credit file outdated? Why was I denied credit? How does divorce affect consumer credit? What is a credit score? How is my credit file affected if I was a co-signer on a loan and the person on whose behalf I co-signed fell behind in their payments? Can I get advice and assistance if I have credit problems? How can I establish and maintain a good credit rating? Should I go to a Credit Repair Clinic to fix my poor credit rating? What can I do if I suspect I am a victim of identity fraud? What exactly is a credit file? Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you - including banks, finance companies, credit unions, retailers - send specific factual information related to the financial transactions they have with you to credit reporting agencies. The credit reporting agencies organize and store this information so that it can be referred to in the future, with your consent. Your credit file contains all the information that a credit reporting agency has received from companies that have extended credit to you. For example, it might include a listing of your credit cards or lines of credit, along with a history of whether or not you have paid on time. If you have declared bankruptcy, that fact will also appear. If you did not pay a bill and your account was sent to a collection agency, that will show on your credit file. In summary, your credit file is a report of your financial history and performance with credit grantors. What information does a consumer credit report contain? Here is a general overview of the different sections in a consumer credit report: Personal Identification -- Contains key identification information, such as your name, address, birth date and Social Insurance Number (SIN). Inquiries -- Lists all individuals or organizations that have requested a copy of your credit file in the past three years. Public Record Information -- Contains information about secured loans, bankruptcies and/or judgements. Third-Party Collection Agency -- Contains information about any involvement with a collection agency trying to settle a debt. Trade Information -- Provides details of your credit transactions and shows whether payments are being made. Each of these "trade" items is evaluated by the credit grantor. The evaluations are based on industry standard ratings, the most common of which use a range from R0 to R9. R0 indicates you are too new to rate; R1 indicates that you pay within 30 days of billing or as agreed; R9 indicates a bad debt, collection or bankruptcy. Consumer Statement -- This is where you can add a brief comment about any information in your file. For example, if you have an R9 rating, you may want to explain that you suffered a setback due to illness, temporary unemployment or other extenuating circumstances. How is this information gathered and who keeps it? Credit information is gathered by credit reporting agencies, sometimes called credit bureaus. There are two major credit reporting agencies in Canada: Equifax Canada Inc., and Trans Union of Canada, Inc. Governed by provincial and federal laws, they store and maintain credit information about individual Canadians for use by members of the credit reporting agency. These members include banks, financing companies, auto leasing companies, credit card companies, retailers, etc. Credit grantors update individual credit files regularly by providing information to credit reporting agencies about their customers' credit and payment activities. This ensures that credit files remain up-to-date and as complete as possible. Other sources of the information contained in your credit report can include collection agencies and public records from courthouses across the country. Whether you make or miss a payment, this fact will be added to your file. When you give permission to a credit grantor to look at your credit file, this history is available for them to review. Years ago, the gathering and storing of credit information was done manually - credit bureau employees created actual paper files and updated them one at a time. Now, credit grantors send data in electronic form to a highly efficient and secure computer environment. Who can access my credit file? Federal and provincial laws are very specific as to who can review your credit file and for what purpose. An individual or company may only obtain a copy of your credit file with your consent or after having told you that they will be reviewing your file. A company must have a legitimate business reason and a permissible purpose, as stated in government regulations, to obtain your credit file. When you apply for a loan or credit card you are usually asked to complete and sign an application form. An application normally includes written consent that gives permission to the credit grantor to check your credit file when you first apply and for as long as the account is open. In addition to your name, an application often asks for your date of birth, your address and a previous address if you've recently moved - all of which helps to locate your credit file at a credit reporting agency. Each time a member of the credit bureau requests your file, the request is noted on your file as an inquiry. You can therefore see a complete record of who has requested your credit file and when. A credit reporting agency may only provide a copy of your file when the request relates to the extension of credit, collection of a debt, housing rental, an application for employment or for insurance purposes. Since your credit file contains only factual information, it is important to remember that each of the companies requesting your credit file will interpret those facts in its own way to arrive at a decision. Of course, you also have the right to obtain a copy of your credit report. What is an "inquiry"? An "inquiry" shows the name of the company or individual who has requested your credit file. Each inquiry is listed on the credit file so that you know who has obtained a copy of it. In addition to checking your file when you first apply for credit, credit grantors typically request regular updates of your credit file after an account has been opened, when it is being renewed or for limit increases. These are listed as "update" inquiries in a separate section of your credit file. They are for your information only and are not displayed to other credit grantors. How long does a credit bureau keep information in my credit file? Inquiries -- Inquiries remain on your file for three years; however a minimum of five of the most recent inquiries is kept. Credit history and banking information -- These remain on your credit file for six years from the date of last activity. Bankruptcies -- Details of a single bankruptcy remain on a file for six years from the date of discharge, or if not discharged, for seven years from the date the bankruptcy is assigned. Where a second bankruptcy occurs, both bankruptcies will remain on the file for a total of 14 years after the second bankruptcy is discharged. Credit counselling, consumer proposals to creditors, orderly payment of debt (OPD), and voluntary deposit -- If you voluntarily enter into a special arrangement with the credit grantor to pay off a debt, this information will remain on your file for three years from the date of final settlement of the debt. Secured loans, judgements, foreclosures, and garnishments -- These legal actions will remain on your file for six years from the date that the action was filed against you. Collections -- If a debt has been sent to a collection agency, the details will remain on your file for six years from the date of last activity. Why is my credit file important? When you apply for credit or want to open an account, the credit grantor wants to be sure that if they lend you money they will be paid back. The more your credit file demonstrates that you pay your debts on time, the more desirable you become as a potential customer. If you have fallen behind in the past, a credit grantor wants to see how you have been managing your debt since then. Your credit file also shows how much you have already borrowed. Credit grantors want to evaluate your financial capacity to make monthly payments. No responsible lender will want to over-lend or encourage customers to take on more debt than they can pay back. What is a rating? Every piece of credit history information in your credit file is assigned a rating by the credit grantor. The most common ratings are "R" ratings. These are known as North American Standard Account Ratings and are the most frequently used. The "R" indicates that the item being described involves revolving credit. If you always pay on time, it will be coded an R1. If an amount was written off because you never paid it back, it is coded R9. The R ratings are a coding system that translates "on time", "one month late", "two months late", etc., into two-digit codes. What it means: R0 Too new to rate; approved but not used R1 Pays (or paid) within 30 days of payment due date or not over one payment past due R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due R5 Account is at least 120 days overdue, but is not yet rated "9" R7 Making regular payments through a special arrangement to settle your debts R8 Repossession (voluntary or involuntary return of merchandise) R9 Bad debt; placed for collection; moved without giving a new address Other rating indicators that might be found on a report are "I" for installment credit or "O" for open credit line. Does my file tell me how I will be rated? Your file will not tell you how an individual credit grantor will evaluate you as a potential customer. Each credit grantor has its own policies for making decisions about individual customers. How can I make sure my credit file information is accurate? Request a copy of your credit file. If you check your credit file periodically, especially before making any major purchases or applying for credit, you can make sure there are no surprises ahead. If you believe your file contains an inaccuracy, you can take steps to correct it. Simply provide information about the disputed item to the credit reporting agency. If you find unfavourable, but accurate facts in your file, you may be able to prevent a potentially embarrassing situation by discussing this with the lender when you fill out an application. You can also initiate immediate action to re-establish good credit. You might consider adding a short qualifying statement to your credit file to explain the circumstances surrounding the negative information in your file. How can I get a copy of my credit report? To obtain your credit report, call the two largest Canadian credit reporting agencies, Equifax Canada Inc. at (800) 465-7166 and Trans Union of Canada at (800) 663-9980. Once you have placed your request, the credit reporting agency will then mail your report to you. It is recommended that you get your report from both agencies to ensure accuracy. How can I correct an inaccuracy in my credit file? To correct an inaccuracy in your credit file, call Equifax Canada Inc. at (800) 465-7166 or Trans Union of Canada at (800) 663-9980, and they will guide you through the Dispute Resolution process. They will review and consider the information you have sent them about your dispute. If this initial review does not resolve the problem, they will continue their investigation. This involves contacting the submitter of the disputed information on your behalf to review the details. They will investigate and report their conclusions to the credit bureau. Based on their findings, the credit bureau may make changes to your credit file. If the disputed information is correct, they will not make any changes. What if I am still not satisfied with an item in my file? If you still do not agree with an item after it has been verified with the submitter, you can send the credit bureau a brief statement explaining that you disagree. They will add this statement to your credit file and it will be shown every time your credit file is reviewed. Important Note: You do not need to pay a third party to obtain, discuss, review or make changes to your credit report. You have the right to access your information and make changes to your file if there is an inaccuracy or if you want to include a comment. It is impossible for a third party to make changes in your file if the facts have been correctly reported. There are individuals and companies that claim they can fix a bad credit file. This is not the case. If a file includes accurate, yet negative information about your credit history, this information cannot be changed. Information will only be changed when your file contains an inaccuracy. Why is some information on my credit file outdated? Employment-- Employment information is reported from applications for credit and therefore is not updated regularly. Balance-- This reflects your balance on the date the submitter last reported the information. Many credit grantors supply information on a monthly basis, so the balance shown may not be your current balance. Old account still reported-- A credit file is a history of your payment habits. All accounts, paid or unpaid, remain on your file for six years from the date of last activity. Duplicate Accounts-- There may appear to be duplicate accounts reported in your credit file. This needs to be examined carefully, because some credit grantors issue new account numbers with every loan renewal. Also, when you report a credit card as lost or stolen, your credit grantor will issue a new card with a new number, resulting in a new item on your file. Accounts included in my bankruptcy still show up in the credit file-- All items included in bankruptcy remain on file for six years from the date of last activity. Why was I denied credit? A credit bureau service neither grants nor denies any application for credit. They simply provide a factual account of your credit history to credit grantors. The credit grantor reviews this information and makes an independent decision based on its own policies. How does divorce affect consumer credit? A divorce decree does not supersede the original contract with the creditor, and does not release you from legal responsibility on your accounts. You must contact each creditor and seek their release of your obligation. Only after that release can your credit history be updated accordingly. What is a credit score? A credit score is a numeric value assigned by credit grantors to indicate how likely someone is to pay back a loan or credit card according to the agreed repayment terms. It is an indicator of the level of risk that a borrower might represent. It is used as a predictor of future performance. Much like a life insurance company that reviews your medical history to determine the insurance risk when you apply for a life insurance policy, credit grantors review your financial history to determine your credit risk. Credit grantors often use an automated scoring process to help make that risk assessment. A credit score is only one piece of information credit grantors use when evaluating your application for credit. The credit score is not part of your credit file. Some credit scores may be based solely on information in your credit file. Other scores may be based on a combination of credit file information and other information you supply on your credit application. Generally, scores use your past credit history to help predict how you might manage credit in the future. How is my credit file affected if I was a co-signer on a loan and the person on whose behalf I co-signed fell behind in their payments? If you are a co-signer to a loan, the activities related to that loan will usually be reported by the credit grantor on both the file of the primary borrower and the co-signer. However, reporting policies may vary amongst credit grantors. Therefore where there is a default in payment, a note indicating that the loan is in default will appear on the credit file of the co-signer. Can I get advice and assistance if I have credit problems? Yes, you may obtain assistance from various organizations. For example, Consumer Credit Counselling Services (CCCS), which you can find in the yellow pages, are non-profit organizations that offer free or low-cost financial counselling to help people solve their financial problems. How can I establish and maintain a good credit rating? There are a few simple ways to keep a solid credit rating. First, pay your bills promptly and always meet payment due dates. Borrow only the amount you can afford to repay. Draw up a budget to control your spending. If you have debts, pay them off as scheduled or even ahead of schedule. And finally, review your credit file regularly to stay informed about the details in your credit file. Should I go to a Credit Repair Clinic to fix my poor credit rating? You may see advertisements for Credit Repair Clinics in the classified sections of newspapers, with claims that they can "fix" bad credit reports, for a fee. Only responsible credit practices over time can improve a poor credit history. For an explanation of how and when information in a credit file may be changed, click here. Credit counseling organizations are not the same as Credit Repair Clinics, and can offer you professional advice on how to improve your credit practices. What can I do if I suspect I am a victim of identity fraud? If you have lost or had your personal identification stolen, or if an institution has contacted you regarding suspected fraud activity, please call Equifax Canada Inc. at (800) 465-7166 or Trans Union of Canada at (800) 663-9980. They will add a statement to your file to alert credit grantors that you may be a victim of fraudulent activity. This may mean that the next time you apply for credit, you may be questioned more thoroughly. The credit grantor wants to make sure that you are, in fact, the person you say you are. The additional questions that might come your way are asked because of the "fraud alert" on your file.