The lowdown on your credit report

Make sense of your credit report and understand what it's used for and who it's used by

Whether it’s a quick stop at the gas station or a large home improvement, chances are that you purchase goods or services using credit.

Credit is a part of our daily lives, and it’s more important than ever that you keep an eye on your credit report. Although if you’ve ever tried to understand your credit report and found it a bit confusing, you’re not alone.

What is a credit report?

A credit report is created the first time you borrow money, apply for a credit card, or apply for a line of credit. From that point forward, your credit report will tell banks, creditors, insurance companies, some government agencies, employers and even landlords details on how you’ve managed past and current obligations.

Your credit report will contain factual information about your credit cards and loans, such as:

• when you opened your account
• how much you owe
• whether you make your payments on time
• whether you miss payments
• whether you go over your credit limit

This makes your credit report one of the most important financial tools you have. That’s because credit reports are used by banks to determine if they should lend you money for important things like a credit card or a home. Credit reports are also used in a lot of other areas of your life. For example, your landlord or employer may request a credit report to determine if you will be a reliable individual.

It is recommended that you obtain a copy of your credit report once a year so you can ensure that all your information is up-to-date and no fraudulent activity has occurred. You can obtain a credit report from a third party credit-reporting agency like Equifax Canada or TransUnion.

Your credit report will contain your credit history information, including:

• Credit accounts and transactions, such as credit cards, retail or store cards, lines of credit and loans
• Telecommunications accounts, such as cell phone and Internet accounts
• Negative banking information such as chequing or savings accounts closed due to money owing, bad cheques or fraudulent activity
• Public records such as bankruptcy and legal judgments and registered items such as a lien on a home or car
• Debts sent to collection agencies
• Inquiries from lenders such as banks and others who request your credit report
• Remarks including consumer statements, fraud alerts and identity verification alerts

The real goodies in the report are the details about your previous borrowing experience, such as balances remaining, payment history and credit limit. This is the stuff future lenders really care about.

Your credit score is a numeric representation of your credit report. It’s a bit like a game. You get points for responsibly managing your credit. Missed or late payments or lots of “maxed out” credit accounts will lower your score.

In Canada, credit scores range from 300 to 900 points. The credit score is determined using a mathematical formula based on five factors: payment history, amount owed, credit history, credit applications and types of credit. The average score for Canadians is around 700. Anything under 620 could affect your ability to secure a loan. The best way to increase your score is to pay back debts on time and consistently. That means, of course, you need to first have some debt to repay.

If your credit score isn’t great, don’t freak out. Knowledge is your most important asset. Once you understand the basics of how a credit report and score works, you will start to understand how to increase your score.