Okanagan Mortgage Team

How and why you should check it out

CBC News

It's been a bad year for bankruptcies. In August 2009, 9,593 Canadian consumers declared bankruptcy. That's 36 per cent higher than for the same month last year — just before the economy imploded.

Business have fared significantly better. August 2009 saw the fewest number of business insolvencies — 466 — since January 1987.

There's a bit of a silver lining to the dark bankruptcy cloud for consumers. Fewer Canadians threw in the financial towel in August than in the month before — 7.3 per cent fewer. It's a trend that's been developing since early last summer.

If you're emerging from the bankruptcy process, rebuilding your credit rating can take significant time. But keeping on top of your rating is pretty straightforward.

There are plenty of people and companies who suggest they can do the legwork, and then some, for you — for a price. Mostly, the things they say they can do, you can do — for free.

How to check your credit rating — and why everyone should

Everyone who's ever borrowed money to buy a car or a house, or applied for a credit card or any other personal loan has a credit file. Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what's in them.

Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it's free for the asking.

So what's in a credit report?

A surprising amount of detail, actually. It contains information about every loan you've taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file.

Each of the accounts includes a notation that includes a letter and a number. The letter "R" refers to a revolving debt while the letter "I" stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy). For a revolving account, an R1 rating is the notation to have. That signifies that you pay your bills within 30 days, or "as agreed."

Any company that's thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of "paid as agreed" notations in your file. And your credit report has a long history. Information remains on file for six years.

What's a credit score? And why is it so important?

Making financial mistakes can lead to black marks your credit rating. (iStock photo)Basically, it's a mathematical formula that translates the data in a credit report into a three-digit number — between 300 and 900 — that lenders use to make credit decisions. It's a snapshot of your credit risk at a particular point in time. The higher your credit score the more likely you are to be approved for loans and receive favorable rates.

A credit score (also called a FICO score) is not part of a regular credit report. You'll have to pay to get that number.

The FICO scoring system was developed by Fair, Isaac and Company, Inc. — the pioneer in credit scoring.

Credit scores between 750 and 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. So that means that anyone with this score is very likely to get the loan or mortgage they've applied for.

How can I get a copy of my credit report and credit score?

You can ask for a free copy of your credit report by mail. There are two main credit bureaus in Canada: Equifax Canada and TransUnion Canada.

To order your credit report, you'll need to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.

If you can't wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax's rate is $15.50.

To get your all-important credit score, you'll have to spend a bit more. Both Equifax and Trans Union offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion's fee is $22.90.

What if I find an error in my credit report?

Well, you won't be the first. In millions of files and hundreds of millions of reported entries, there are bound to be mistakes. Some are minor data-entry errors. Others are damaging whoppers. For example, there have been instances where negative credit files from one person got posted to the file of someone who had a similar name (the "close enough" school of credit reporting).

Several years ago, CBC's Marketplace program asked 100 people to look over their credit reports to see if there were any mistakes. More than 40 people spotted errors. And in 13 of the cases, they were serious enough to affect their credit status.

And if you spot entries that don't seem to relate to you (such as charge accounts you never opened or bad debt notations you never got), you may be a victim of identity theft. You should notify the credit reporting company immediately.

What are credit-monitoring services?

There are companies that will take the effort of checking your credit report off your hands - for a price. Usually, a pretty steep price. If you go to TransUnion's website, for instance, the first thing you see is their effort to sell you on their credit monitoring service. It costs $14.95 a month and includes unlimited access to your credit report and credit score.

There are several other companies offering the same service for similar prices. They usually include features like e-mail alerts when there's a change to your credit report.

It's a personal decision whether the service is worth the money. The bottom line is you can always check your credit report for free by mail. Or, you could pay to get it online whenever you want. But for people who have been the victims of identity theft or people worried that they may be susceptible to ID theft, the expense may be worth it to ease the anxiety.

Should I pay to use a credit repair service?

Industry Canada recommends you save your money and do the legwork yourself. It notes that there's nothing a credit-repair company can do that you can't do yourself. Anything you do won't cost you a cent.

There are many companies that sell "credit repair" services. If you decide to hire one, you should stay away from those that:

• Claim to have an "in" with credit reporting agencies. They have as much of an "in" as you do.
• Claim they can clean your credit quickly or get you a new, clean credit file. Building credit takes time. So does restoring a good credit rating.
• Suggest you call their 900-number for details on how to fix your credit report. You'll be paying by the minute for information that you can get for yourself and that likely won't help you at all.

Some of these companies will offer credit-monitoring services that alert you if something suspicious appears on your credit report. That will cost you hundreds of dollars a year. Other services for sale include registering all your credit, debit and ATM cards. You call the service if your card is lost or stolen and the company notifies your financial institution. Again, this is something you can do at no expense to you.

If you notice an error in your credit report, contact the credit-reporting agency and tell them. You'll have to fill out a form and any documents that support your claim.

If the file is changed, you will be sent a copy of your new report and any company that's requested your credit file in the previous two months will also be sent the corrected file.

If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.

There's no way a credit repair clinic can change accurate information that doesn't reflect well on you. A statement from Equifax puts it bluntly: "Only responsible credit practices over time can improve a poor credit history."