Credit reports 101
Learn how to manage your credit report and why it matters.
We hear a lot about credit reports and the benefits of having a good credit score, but what do you really need to know? In the following article, we’ll explain why it’s important to manage your credit score and offer tips on how to do it. Understanding the basics of credit reports and credit scoresAttention, this link will open a new tab.Attention, this link will open a new tab. will put you in a better position to obtain lower interest rates and maximize your chances of achieving your dreams.
Your credit report
Do you remember your first credit application? Maybe it was for your first credit card, a line of credit for your post-secondary studies, or a loan for your first car. Your credit report is created the first time you make this type of transaction (e.g., loan, credit application) or set up an account in your name (e.g., with Hydro-Québec).
The report is a summary of how much debt you have and your credit history. It serves to assess your borrowing capacity and how punctual you tend to be with payments.
The scoring system
Throughout your life, your credit score will be a determining factor in the realization of your financial goals. Your credit report lists all of your accounts, each of which receives what is known as an R rating. This rating reflects your payment habits, such as how many months a certain payment is past due.
Your credit score is calculated on a scale ranging from 300 to 900 points. It takes into account your total debt, your compliance with borrowing conditions, your bills, and any outstanding accounts, which may include the following:
- Credit cards
- Personal or car loans
- Mortgages and lines of credit
- In-store financing
- Cellphone, TV, and internet service
The higher your credit score, the more trustworthy you appear to lenders. That’s why it’s important to have a good score when submitting a credit application for a major life project. A solid credit report gives you a shot at significantly lower interest rates. Imagine how much you would save if you were offered 0.5 percent interest on your mortgage.
You’d be that much closer to the new car you’ve been eyeing, that dream trip to San Francisco, or a new dining table for your freshly renovated kitchen.
EquifaxAttention, this link will open a new tab. and TransUnionAttention, this link will open a new tab., Canada’s two credit bureaus, are responsible for creating your credit report and score. They can tell you whether you’ll have an easy or difficult time securing a loan.
Do you know what your credit report looks like?
Keep in mind that credit reports aren’t just useful to lenders. You can request a copyAttention, this link will open a new tab. yourself to check your credit health. In fact, it’s recommended to check your credit report once every 12 to 24 months.
Why it matters
Seeing your credit report will give you an idea of your spending habits and allow you to make adjustments where needed to improve your credit scoreAttention, this link will open a new tab.. For example, you might discover an outstanding debt you’d forgotten about or realize you should cancel a credit card account you no longer use.
Managing your credit activity may be simpler than you think. The first key to maintaining a high credit score is to avoid accumulating debts and making late payments. You should also avoid making only minimum payments on your credit card bills, as doing so lowers your credit score.
Second, be proactive! If you’re going through a rough patch financially, reach out to the companies you owe money to and negotiate a payment agreement.
Remember, it’s never too late to improve your credit score. Adopting just a few healthy financial habits will quickly have an impact on your credit report.
Bonus - Did you know?
- A high credit score and zero late payments on your credit report will give a huge boost to your negotiating power with lenders.
- Your assets, savings, and RRSPs do not appear in your credit report, but they could help you secure better borrowing conditions.
- Your savings can be used to pay off unexpected debts quickly, which will help you maintain a good credit report.
- Some employers can ask to check your credit report (your permission is always required).
- Your credit information remains on file for seven years.
- Multiple credit applications spread out over the same year will negatively affect your credit score. However, if they are all made within a short period, they will be considered a single application. That’s handy information if you’re planning to buy new appliances, for example.