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Credit Reports Explained

Credit Reports Explained

Your financial reputation lives within your credit report. This comprehensive document contains the details that dictate your creditworthiness and determine your access to loans, credit cards, mortgages, rental applications, and more. While credit reports may seem cryptic, learning how to read and understand this integral component of your financial life is crucial for reaching your financial goals.


Credit reports summarize your history of managing debt and repaying loans. They are issued by the three major credit bureaus – Equifax, Experian, and TransUnion. Each bureau maintains a separate report of your credit information. When you apply for new credit, lenders will access your credit report to assess your credit risk and make lending decisions accordingly.


At first glance, credit reports can be intimidating. Pages of codes, numbers, and jargon don’t paint a clear picture for most people. However, once you understand the key pieces of information and how to interpret them, you’ll gain valuable insight into how lenders view your trustworthiness. There are also important actions you can take to build your credit by understanding your reports.


This beginner’s guide will explain what a credit report is, the key sections it contains, how to decipher the information, and why it’s critical to monitor your credit reports regularly. Let’s demystify these important documents so you can take control of your financial reputation.

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What is a Credit Report?

A credit report is a comprehensive record of your credit history and current credit accounts. It is issued and compiled by the three major credit bureaus – Equifax, TransUnion, and Experian. Lenders use the information in your credit report to assess your creditworthiness and determine the risk of lending money to you.

At its core, a credit report provides detailed information about your financial responsibility based on how you have managed credit in the past. It outlines what types of credit accounts you have or have had, such as credit cards, auto loans, mortgages, and more. It lists the credit limits, account balances, and your payment history on each account. A credit report also includes any credit inquiries made by lenders who have accessed your report, as well as any public records like bankruptcies, judgments, or tax liens.

So in summary, a credit report allows lenders to evaluate your credit risk before approving any new credit. It provides a comprehensive overview of your financial reputation based on your borrowing and repayment habits over time. Checking your credit reports regularly is crucial for maintaining accurate information and a healthy credit profile.

 

Identifying Information

The first section of your credit report contains your personal identifying information, including:

 

  • Full legal name
  • Any previous or alternate names used
  • Current and previous mailing addresses
  • Social Security number
  • Date of birth
  • Current and previous employers

 

Lenders use this information to match you to your credit history and confirm your identity. Any inaccuracies with your personal details could make it difficult to obtain credit. For example, if your name is misspelled or an old address is listed, the lender may think the credit report belongs to someone else.

It’s crucial to verify this section and dispute any errors with the credit bureaus. Make sure your current name, address, and employment details are fully updated. Having correct identifying information prevents headaches when applying for credit or loans.

 

Credit Account History

This section provides the details of all your current and past credit accounts, including credit cards, retail accounts, installment loans, and mortgages. Lenders want to see how you’ve managed different types of credit over time.

For each credit account, you’ll see when it was opened, the credit limit or original loan amount, the current balance owed, and your monthly payment. This helps lenders understand how much available credit you have versus how much you are using.

The most important piece of your credit account history is the payment status. Positive payment history shows lenders you are reliable. Payment status codes indicate if an account is current, or how many days past due a payment is – for example, 30, 60, or 90 days late. Accounts will also show if they have been sent to collections.

Too many recent late payments or delinquent accounts paint the picture of a risky borrower. On the other hand, a long track record of on-time payments demonstrates responsibility with credit.

The types of credit accounts are also telling – having a mix of credit cards, installment loans, mortgages, etc. shows you can handle different credit products. Lenders like to see you’ve successfully managed various credit obligations over time.

 

Credit Inquiries

Credit inquiries are a record of everyone who has accessed your credit report. There are two main types of credit inquiries:

 

  • Soft inquiries: When you check your own credit report or a creditor checks your credit without your permission (like for pre-approved credit card offers). Soft inquiries don’t affect your credit score.
  • Hard inquiries: When you apply for new credit and a lender checks your credit report with your consent. Hard inquiries can lower your credit score a few points but the impact is minor and temporary.

 

Every credit inquiry will show who made the request (the creditor’s name), the date, and the purpose. For example, if you applied for a credit card from ABC Bank on March 1st, you’d see an inquiry like:

 

ABC Bank

March 1, 2023

Credit card application

Too many credit inquiries in a short period can be a red flag for lenders, indicating you’re aggressively seeking new credit. However, rate shopping for a mortgage or auto loan within a focused period is generally counted as a single inquiry.

Monitoring your inquiries closely can help you catch any unauthorized access of your credit report, which could indicate identity theft.

 

Public Records

Public records make up a portion of your credit report and include any legal or public information related to your financial history. The following public records may appear on your credit report:

 

Bankruptcies – Bankruptcy filings are reported on your credit report for 6-10 years depending on the type. Chapter 7 and Chapter 13 bankruptcies remain for 7-10 years. Bankruptcies indicate you were unable to pay your debts and represent a red flag for lenders.

 

Tax Liens Unpaid tax debts can result in a lien against your assets by the CRA or IRS. Tax liens remain on your credit report for 7 years from the date they are paid.

 

Judgments – Court judgments against you for unpaid debts are reported for 6 years from the date filed. Having judgments can severely damage your credit score.

 

Foreclosures – A home foreclosure stays on your credit report for 7 years and indicates you failed to repay your mortgage. This can make getting approved for future loans very difficult.

 

Having any public records on your credit report indicates financial irresponsibility to lenders. It’s important to resolve any outstanding tax debts, judgments or other public records as soon as possible to avoid potential damage to your creditworthiness.

 

Payment History Codes

One of the most important sections of your credit report is the payment history. This shows your track record of making payments on time for all your credit accounts. Payment history makes up a significant portion of your credit score.

The payment history uses codes to indicate your payment status each month. Here are some common codes:

 

  • OK or blank – You paid on time
  • 30 – You were 30 days late on your payment
  • 60 – You were 60 days late on your payment
  • 90 – You were 90 days late on your payment
  • 120 – You were 120 days late on your payment
  • 150 – You were 150 days late on your payment

 

Payment history codes go back 7 years on your credit report. A long history of on-time payments is ideal. But if you have some 30, 60, or 90 day lates, it’s important to get current and continue making on-time payments. Too many recent late payments can negatively impact your credit score.

Collections accounts may also show up in your payment history. These indicate you failed to pay a debt and it was sent to collections. Collection accounts hurt your credit score, but paying them off can help improve your payment history status.

Always check your payment history codes and make sure they are reporting accurately. If you find any errors, dispute them with the credit bureaus right away.

 

Reading Credit Limits and Balances

One of the most important factors lenders look at is your credit utilization ratio. This compares how much credit you are using versus how much credit you have available. For example, if you have a credit card with a $10,000 limit and a $2,000 balance, your credit utilization ratio would be 20% ($2,000/$10,000).

In general, it’s best to keep your credit utilization ratio below 30%. Using more than 30% of your available credit can negatively impact your credit score. The lower the ratio, the better it is for your credit profile.

When reading your credit report, look at the credit limit and balance owed for each credit account. Make sure you understand how much you’ve used versus how much is still available. If any accounts are nearing the 30% threshold, consider paying them down to lower your utilization.

You may notice that even if you pay off your balances every month, your credit report may still show a balance. That’s because the balance reported is typically your statement balance, not what is owed as of that day. So you still get credit for paying in full each month, even if a balance appears.

The mix of credit types is also important – having installment loans and mortgages can help build a diverse credit profile. Try to have a good variety of credit types and don’t max out the limits on all your cards.

 

Length of Credit History

One of the most important factors in determining your credit score is the length of your credit history. This refers to how long you’ve had credit accounts opened and actively in use. Generally, the longer your credit history, the better.

Lenders like to see that you have a proven track record of managing credit responsibly over an extended period of time. This gives them confidence that you are a low credit risk. Someone with a very brief credit history doesn’t provide enough information to make an accurate assessment.

For this reason, having older accounts with longer open dates can significantly improve your credit score. The average age of your accounts represents 15% of your FICO score calculation. Even if you have some newer accounts, keeping long standing accounts open prevents your average age from decreasing too much.

Try to avoid closing your oldest credit cards since this can shorten your credit history and lower your score. Lenders may view this negatively, as though you are trying to hide information. Keep accounts open even if you aren’t using them actively.

A long credit history also demonstrates that you have experience managing different types of accounts, from installment loans to revolving credit. This mix of accounts improves your credit diversity and depth of credit information.

Overall, a longer credit history gives lenders confidence in your ability to manage debt responsibly for the long-term. Maintaining long-open accounts and avoiding closures of your oldest accounts will help maximize this important factor.

 

New Credit Applications

Your credit report shows a record of every time you have applied for new credit, including credit cards, loans, mortgages, and other accounts. Each credit application triggers an inquiry on your report. Too many inquiries in a short period can be seen as a red flag by lenders.

When you have lots of recent inquiries, it can imply higher credit risk because it appears you are desperately seeking new credit sources. This worries lenders that you may be overextending yourself financially. According to FICO, having too many new accounts opened recently predicts credit risk.

As a rule of thumb, try to limit new credit applications to no more than 2-3 per year. Spread them out over time, not all at once. Keep in mind that comparison shopping for a mortgage or auto loan within a short window counts as only one inquiry. But applying for multiple credit cards in a few months will show up as several inquiries, so avoid this.

While new inquiries may ding your score a few points in the short term, the impact is not permanent. Inquiries fall off your report after two years. Plus, having a new account added can help build a longer credit history over time.

Monitoring new credit applications and limiting them to a reasonable number will help ensure this factor does not negatively influence your credit score.

 

Errors and Fraud

One of the most critical reasons to check your credit report regularly is to monitor for any errors or signs of identity theft and fraud. It’s estimated that over 70% of credit reports contain some sort of error which could be negatively impacting your score. This could include incorrect account information, misspelled names, wrong addresses, duplicated accounts, or accounts that don’t belong to you.

Errors usually occur when creditors report inaccurate information to the credit bureaus. For example, you may have paid off a loan years ago but it still shows up as an open account. Or you may have an account in collections that you already paid but the collection agency failed to update your report. In other cases, it could simply be a typo in your name or SSN.

Fraudulent activity is also something you want to watch out for. Identity thieves may open credit cards or loans under your name which then get reported on your credit history. Or they could falsely change the address and contact info on your legitimate accounts to hide fraudulent charges and activity. This is why regular credit report checks are essential.

If you spot any errors or signs of identity theft, it’s important to immediately dispute them with the credit bureaus. Provide evidence that the information is inaccurate. The credit bureaus are legally required to investigate disputes within 30 days. You may also want to report identity theft to your local authorities and consider a credit freeze to prevent further fraudulent accounts.

Left unaddressed, mistakes and fraud can wreck your credit score and make it difficult to get approved for future loans or lines of credit. But by leveraging your free annual credit reports and monitoring them closely, you can catch issues early and take corrective action.

 

Getting Your Credit Reports

One of the most important steps in understanding your credit is accessing your credit reports. Every consumer is entitled to one free credit report from each of the three major credit bureaus – Equifax, Experian, and TransUnion – every 12 months. The official website to request these free reports is AnnualCreditReport.com.

AnnualCreditReport.com is authorized by the three nationwide credit bureaus and provides a fast, simple process for requesting your reports. You’ll be asked to provide personal information like your name, Social Security Number, and address to confirm your identity. This ensures your credit information is kept secure.

When requesting your reports, it’s generally recommended to get one from a different bureau every four months. This allows you to keep an eye on your credit all year long. For example, you could get your Equifax report in January, your TransUnion report in May, and your Experian report in September.

AnnualCreditReport.com offers a clear overview of the process with step-by-step instructions. Once you submit your request, you should be able to access your report online immediately. You’ll also have the option to print it or save it. Make sure to review your reports thoroughly for any inaccuracies or fraudulent activity.

Checking your credit reports regularly via AnnualCreditReport.com is vital for understanding how lenders view your creditworthiness. Monitor your credit history and catch any issues early on by utilizing this free and easy-to-use resource.

 

Improving Your Credit Score

A good credit score opens the door to favorable interest rates and financing options, so it’s important to take steps to improve yours if it’s not where you want it to be. Here are some effective ways to boost your credit score over time:

 

Make All Payments On Time

Payment history has the biggest impact on your credit score. Set up automatic payments or payment reminders to avoid ever missing a due date. If you do miss a payment, get current as soon as possible.

 

Lower Your Credit Utilization Ratio

Don’t max out your credit cards. Experts recommend keeping your balances below 30% of your credit limit on each card and 10% overall.

 

Build a Long Credit History

Having established accounts looks good to lenders. Keep your oldest credit card open and consider leaving accounts open even if you don’t use them often.

 

Limit New Credit Applications

Too many new accounts and hard inquiries can lower your score temporarily. Only apply for credit you need and space out applications by at least 6 months.

 

Dispute Any Errors

If you spot errors on your credit report that are hurting your score, file disputes with the credit bureaus to get them corrected.

 

Monitoring and Tracking Score

It’s important to check your credit reports from all three bureaus regularly, as there can be key differences between them that impact your credit score. Here are some tips for monitoring your credit score:

 

  • Request a free credit report from Equifax, TransUnion, and Experian once every 12 months. Compare the information to identify any discrepancies or errors.
  • Stagger your requests throughout the year (e.g. Equifax in January, TransUnion in May, Experian in September) to keep a more continuous eye on your credit.
  • When checking your reports, look for signs of fraudulent activity like accounts you don’t recognize. Dispute any suspicious items with the bureaus.
  • Use the free online tools from each bureau to check your report and score anytime throughout the year.
  • Consider signing up for a credit monitoring service that provides alerts for key changes to your credit reports.
  • Track factors like your credit utilization ratio, payment history, and new credit applications that influence your score over time.
  • Aim to build a long and diverse credit history across multiple types of accounts.

 

Monitoring your credit reports and score regularly enables you to catch issues early and take action to maintain your credit health.

 

Conclusion

In summary, your credit report contains a wealth of important information that determines your creditworthiness and access to financing. By regularly checking your credit reports from all three bureaus and understanding the key components, you can protect your financial reputation and work towards improving your credit score.

The most important factors that make up your credit score include your payment history, amounts owed, length of credit history, new credit inquiries, and types of credit used. Monitoring these key items and maintaining responsible credit habits will help strengthen your score over time.

Be sure to check your credit reports from Equifax, Experian, and TransUnion at least annually for any errors or fraudulent activity. Dispute any inaccurate information with the credit bureaus right away. Use the knowledge in this beginner’s guide to demystify your credit reports and take control of your financial future.

By regularly checking your credit report and understanding how to read it, you gain valuable insight into how lenders assess your creditworthiness. Use this knowledge to build a strong and healthy credit profile.

 

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Questions About Car Loan Credit Reports

To access your credit report in Canada, you can contact one of the two major credit reporting agencies: TransUnion Canada or Equifax Canada. You can get a free copy of your credit report from each agency once a year. You can access your credit report online, by phone, by mail, or in person. To access your report, you will need to provide proof of identity such as your SIN, date of birth, address, etc.

A Canadian credit report typically includes your identifying information like name, date of birth, address history, employment details, etc. It also includes your credit history like your open and closed accounts, payment history, balances, credit limits, any late payments, collection notices, etc. Public records like bankruptcies and judgments may also be listed. Your credit inquiries from lenders checking your credit will also appear.

In Canada, negative credit information can stay on your credit report for 6 years or longer in some cases. Bankruptcies stay on your credit report for 7 years. Collections, judgments, or tax liens can stay on your report for 6 years from the date the account first went unpaid. Late payments and missed payments stay on your report for 6 years.

In Canada, credit scores range from 300 to 900. A FICO score above 800 is considered excellent credit. 720 to 799 is considered very good. 660 to 719 is good credit. 600 to 659 is fair credit. Under 600 is considered poor credit. Aim to get your credit score over 700 to get approved for most loans and credit cards.

To improve your Canadian credit score: always pay all bills on time, keep credit card balances low, limit credit inquiries by only applying for credit when needed, establish a long credit history by keeping accounts open, and maintain a low credit utilization rate by not using more than 30% of available credit.

Your Canadian credit report is a detailed history of your credit accounts and payment behavior. This report is used to calculate your credit score. Your credit score is a three digit number summarizing your creditworthiness. It is calculated based on the information in your credit report using a statistical algorithm developed by credit bureaus.

Checking your own credit report is important to ensure the information listed is accurate and up-to-date. Mistakes can drag down your credit score. Reviewing your own report also lets you see what lenders view when you apply for credit and gives you a chance to correct errors that could negatively impact your ability to get approved.

Simply checking your own credit report will not hurt your credit score in Canada. A “soft inquiry” when you check your own report is visible only to you and does not get counted in credit scoring models. A “hard inquiry” that happens when a lender checks your report during an application for credit is what can temporarily impact your score.

Hard credit inquiries from applying for credit can impact your Canadian credit score for about 12 months but the impact fades over time. Typically, inquiries have little impact on scores over 700 but can drop scores under 650 by a few points. Too many inquiries over a short time can indicate higher risk to some lenders.

Your credit utilization rate is the ratio of total balances versus total available revolving credit limits across all your credit cards and lines of credit. Using over 30% of available credit can drag down your Canadian credit score. Under 10% utilization is ideal for credit scores over 700.

In Canada, FICO scoring models can take your entire account history from when accounts were opened into consideration when calculating your score. Even inactive accounts remain on your credit report and factor in for as long as 6-7 years after closing. Lengthier credit history demonstrates better risk.

Generally it is best not to close your older credit card accounts as longer length of credit history improves your Canadian credit score. You can keep old accounts open without using them. Or make occasional small purchases annually then pay balances off to keep accounts active.

Your balances owed are generally reported to the Canadian credit bureaus by your various creditors on or near your monthly statement date. Balances change monthly. So it is wise to pay all cards down to under 10-30% of limit prior to your statement date.

Yes, with some patience you can rebuild credit on your own after encountering financial problems or bad credit. Get secured cards. Keep balances very low. Apply for credit only when needed. Pay all bills early. Check reports and correct errors. It takes time but scores can improve.

Typically it takes about 6 years for previously negative or inaccurate information to fade from your Canadian credit reports after financial issues. But you can start rebuilding scores in under 12 months by keeping new accounts in good standing with low balances and on-time payments.

To repair errors on your Canadian credit report, file disputes online or by mail with TransUnion and Equifax attaching copies of supporting documents. Common disputes involve incorrect account status, payments marked late that were on-time, closed accounts listed open, and identity theft. Disputes must be investigated.

Using a professional credit repair agency is usually not needed as you can self-repair credit issues by filing disputes directly with the credit bureaus for free if needed. Beware of repair agency scams. Legitimate agencies can help with complex cases involving identity theft, lawsuits or negotiating debt settlements.

You have legal rights to one free copy of your credit file annually from each credit bureau and can dispute inaccurate information. Lenders must have your consent to access your credit report with limited exceptions. You can opt-out of pre-approved credit offers. You can place fraud alerts if an ID theft victim.

FICO scores in Canada range 300-900 and higher scores indicate lower credit risk. Scores get calculated from complex algorithms using your credit report details like payment history (35%), debt load (30%), credit history length (15%), new credit (10%) and credit mix (10%).

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