The Canadian Credit Report: How will you score?

Written by Posted On Monday, 10 April 2006 17:00

Even if your financial reputation is flawless, credit reporting bureaus, used by lenders, builders, real estate brokerages and other companies to check your credit worthiness, may have the wrong information in your file. Although, Canadian law allows you to correct mistakes and misinformation, the process is slow and the lost time may cost you the mortgage you needed, the condominium unit you wanted or the house you dreamed of.

"About 40 per cent of credit reports have errors that range from not serious to serious, but how we define an error and how they do is different," said Chartered Public Accountant Mike Morley CPA, FCI, CCE, MICM, author of The Complete Guide To Credit & Credit Repair for Canadians . "I'm closing in on 400 talks and every time I talk to a live crowd and I ask, 'Who has seen their credit report?' I barely get one or two hands. How people trust banks and credit organizations to look after them!"

Stories about individuals who suffer the embarrassment, expense and loss caused by incorrect credit reports rarely hit the media:

  • Unless you've had a bad experience or know someone who has, you many continue to trust that your interests are fully protected by financial institutions and governments.

  • Those who pay their bills on time may not expect to have a problem with their credit, however, an undiscovered incorrectly-recorded credit item could lead to higher mortgage or credit card interest rates than deserved.

  • Canadians know that their right to privacy is protected by law, but those who don't read the fine print before they sign may not understand that, when they sign an application form for anything, they have probably also agreed to waive their right to privacy.

"I order a new report when mine comes in," said Morley, who believes you should check your credit report at least every six months or so, especially since there's no charge for your own credit report. "I immediately ask for another one. It's just the cost of a stamp and another photocopy."

Since there are two main Canadian credit bureaus, you'll actually need two stamps to keep track of your financial reputation. These bureaus are competitors and collect financial information about you from different creditor and retail sources, therefore, the final credit report from each bureau will be different -- hence the two stamps. To print off a copy of the request form and get an up-to-date mailing address, search out the offer of a free credit report on each site:

Both credit bureaus will also encourage you to pay to see your personal report online. However you receive your report, correction requests must be made in writing with proof attached. If you don't have clear documentation to prove the error, write to the creditor involved explaining the problem and ask them to set the record straight. The creditor has 30 days to make a correction. Ask for a copy of everything so you can follow up persistently with the bureau until the correction is recorded.

As well as your credit report, you'll need to consider your credit score, a number between 300 and 900 (700 is a good score) that defines your risk to creditors. For a fee, you can find out what your credit score is at that moment, but two bureaus means two credit scores at any point in time. Scores continually change since they are based on dynamic factors, including how much credit you use. For example, maintaining a credit card balance that is more than 35 percent of the available limit may hurt your score, as will holding cards you don't use.

Morley suggests planning ahead to get around the cost and changeability of credit scores. Keep your credit report up to date so you know what to expect at that end. When you deal with a lender or creditor, ask who they use before you apply and what score they expect from their bureau to approve you. You may need to check your score to be sure, but you'll be able to save an inquiry and a turned down application if you won't qualify.

When arranging or renewing a mortgage, work through a mortgage broker who will approach a range of commercial and private lenders on your behalf, avoiding multiple credit inquiries which may lower your score. Mortgage brokers also know which lender policies will best match your credit history and can negotiate better mortgage terms than you'd be offered on your own.

Here are a few other strategies to consider:

  • Think before you apply for credit. If you have a poor financial track record or a low credit score, you'll probably get turned down, driving your credit score lower. Remember, publicly-accessible government records such as the courts, land title and lien registries, and bankruptcy listings are also sources.

  • Keep copies of every application you sign so you can easily provide written proof if information is improperly entered into the database. When you and a creditor are filling out an online form together, ask to review the form before it's sent so you catch any typos or mistakes.

  • Pay bills on time. Every credit application you sign includes permission for the creditor to report to the credit bureau how you pay. Many creditors report every month and others report only if you are late.

  • Let creditors know if you're having trouble making payments and seek credit counseling.

  • Remember that the federal government regulates financial institutions through the Financial Consumer Agency of Canada (FCAC) if you have questions.

Credit and credit repair have not traditionally been part of Canada's core education programs, but these and related home ownership topics should be. Morley has convinced the Toronto District School Board to add credit and identity-theft prevention to its curriculum. Perhaps these graduating classes will be better prepared for the minefield of student loan debt that is the usual university graduation gift -- one that can sabotage first-time home purchases.

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