What you should know about your credit rating
If you use a credit card and haven't checked your credit rating, it would be wise to know what's on the record. Unbeknownst to many Canadians, credit reports can have a major impact on your life, and misinformation and errors can occur.
Not knowing your credit rating can affect things like your ability to get a job, a car loan, or a mortgage, for example. Your credit report will also show if you have been a victim of fraud. In worse-case scenarios, people who abuse, or are sloppy with credit card payments, can trigger a bad credit rating that can take years to improve.
Bankrate Canada spoke to a federal government agency and a veteran in credit counselling for their best advice on maintaining a healthy credit rating.
The first thing that Canadians should know is what triggers the creation of a credit report. According to Julie Hauser, media relations officer with the Financial Consumer Agency of Canada (FCAC), as soon as someone starts borrowing money they create a credit history and a credit rating.
"Some people don't realize they have a credit rating because they never asked about, or were even aware of it being created," says Hauser. "It's created as soon as you apply for a loan, a credit card, or a mortgage."
In all of those circumstances, a creditor provides your financial information to a credit reporting agency. The agency also tracks how you use credit products, such as credit cards, and how you pay your bills. A credit score is drawn from your credit history and it can affect whether lenders will loan you money and how much interest they will charge you. "So it's important for people to be aware of what's in their credit report to ensure that it's accurate," adds Hauser.
How to check your credit rating
According to a recent survey by the FCAC, 90 per cent of Canadians do not know that they can receive a free credit report by mail, and 62 per cent do not know how to dispute an entry in their credit report.
While the FCAC does not provide personal credit rating information, Canadians can receive a credit report from two private sector agencies, TransUnion of Canada Inc. and Equifax Canada. The credit report is free; however, to get your credit score, which is a calculated scoring number based on your history in handling credit, there is a fee.
"In most cases, you probably don't need to know what your score is," says Hauser, "because in reviewing your credit report, you get enough of an idea of what your score is likely to be."
She recommends that consumers request a report from both agencies and that every six months you alternate between the two agencies. That way, you can double-check the accuracy of each report because each agency may have different information on file.
Be sure to look for incorrect information, such as any outstanding payments that are not yours, or are yours but you didn't receive a statement for or you forgot to pay.
"Making sure your information is up to date is so critical," says Laurie Campbell, executive director at Credit Canada. If, for example, you're applying for a loan or a mortgage and your credit report shows that you're still at your old job, that can impact you getting a loan.
Creating and maintaining a healthy credit rating
The most common mistake that people make with their credit rating is assuming the more credit cards you have the better. "People think, 'I'll have five credit cards and therefore it will look like I'm more credit worthy,' " says Campbell, "but it actually works against you. [Instead] it tells creditors that you have the ability to get into debt because you have access to all that open credit."
Campbell offers this checklist of tips for other ways to keep your credit rating healthy:
- Limit the amount of open credit, whether it's credit cards or lines of credit, to those that you use (you only need one credit card to keep your credit rating in good standing).
- Make sure you always pay your bills on time, even if it's just the minimum; if not, you're paying interest and if you lag on a regular basis, you'll end up with a sporadic payment history on file.
- Avoid missing/forgetting a payment date by making a payment ahead of time online, by mail, or in person at your bank.
- Check your credit rating once a year to make sure it's up to date and accurate.
"I think it's important for people to understand that it takes a long time to improve a bad credit rating, so make sure you're in good shape, rather than trying to fix it after the fact," says Campbell.
For more information on credit reports and scores, visit the FCAC website at itpaystoknow.gc.ca.
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Diana Cawfield is an award-winning writer specializing in finance.