Reading Your Credit Report

A comprehensive look at the different elements included in a Canadian credit report: the credit rating and score. 

One of my first posts for this blog was about how important it is to get your credit report. I sent in for my credit report and got it back a while ago. I wanted to share with you what I learned from it. First of all, I was amazed by how detailed the thing was. It listed any instance where I applied for or got credit, how much the loan was for, and how much of it I paid off. It was incredible, I forgot about many of the things on there. I'm going to explain how to understand the different parts of it in more detail below.

What's In The Report?

The report you get will tell you any time you have applied for or received credit. This includes credit cards, car loans, student loans, mortgages, etc... For each instance of credit you received the report will tell you:

• when you opened the account
• how much you owe
• whether you make payments on time
• whether you've missed any payments
• whether you've gone over your credit limit

   (Financial Consumer Agency of Canada, 2012)

These things are important to creditors because it lets them know what kind of client you are. Are you trust-worthy to lend money to? Do you regularly pay-back your loans or do you let them slip? 

Credit Rating

You'll also get a credit rating for each instance of credit you received. Your score will be comprised of two parts; a letter and a number.

The letter will be either an I, O, or R.

• "I" means that you got credit on an installment plan, meaning you borrowed money and repaid it in fixed amounts on a regular basis on an agreed amount of time. Example: car loans.
• "O" means that you received an open amount of credit, where you borrowed up to a certain amount as you needed it. Example: lines of credit and students loans.
• "R" means that you make regular payments of differing amounts depending on your much you owe. Example: credit cards.

The number will range from 0 to 9. Here is the North American Standard Ratings guide:

• 0: Too new to rate; approved but not used.
• 1: Pays (or paid) within 30 days of payment due date or not one over payment past due.
• 2: Pay (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.
• 3: 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.
• 4: Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due.
• 5: Account is at least 120 days overdue, but is not yet rated "9".
• 6: This rating does not exist.
• 7: Making regular payments through a special arrangement to settle your debts.
• 8: Repossession (voluntary or involuntary return of merchandise).
• 9: Bad debt; placed for collection; moved without giving a new address or bankruptcy.

   (Financial Consumer Agency of Canada, 2012)

So put these two together and you will have a score that might look like this: R1. For each instance of credit you have received, you will get a separate score. That means that you could be an R1 (great!) for one credit card, but an R5 (not so good) for another card. 

The letter (type of credit) you have doesn't really matter to creditors, it's just a description of the type of credit you received. The number is the important part of the rating because it indicated what kind of person you are financially; are you a good person to lend money to or not? You want to have a score of 1. That is the best score you can get. 9 is obviously the worst and I hope that never happens to you, but it does go off your record after a certain number of years. Most things like credit transactions, banking items, and collections stay on for 6 years. It is important to know that TransUnion and Equifax (the only credit reporting agencies in Canada) keep things on your report for different numbers of years. Bankruptcy, for example will be on your record for 6 years with Equifax, but 7 with TransUnion. For a complete list of long everything stays on your credit report, check out this website from the government of Canada.

Credit Score

I personally didn't order my credit score this time because it cost money, but I will probably order it in the future. Your credit score will be on a scale from 300 to 900. The higher the number, the better your score is, meaning you are a good person to lend money to you. It is important to note that while Equifax and TransUnion both use this scale, they each calculate your score differently.

This score will be used to calculate whether you are worthy to be lent money and at what interest rate you will be lent it. I believe that the score is generally used in combination with your rating to give a better picture of your credit history. Since your score is calculated on a wider scale (300-900) it can give a lot for detail than your rating (1-9).

Conclusion

I can't say enough how important it is to get your credit report. It's easy and you can do it for free. Once you get your report hopefully you will understand a little better what all those numbers and letters mean. You can then focus on keeping your great credit or work to improve it. Whatever the case, it's important to know these things because these letters and numbers are going to play a huge part in your life when you apply for student loans, get a house, etc... Know them and know where you stand for getting credit.