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What is Credit?

O’Brians Automotive has been helping people repair their credit for over a decade, so we thought we’d put some information together so that you know exactly what a credit bureau is and the importance it holds. Below we break down every aspect of your credit report and go into detail about what appears on it, and just what that tells the people on the other side who are looking at it to determine whether they want to lend you money or not.

What is your credit report?

A credit report is the summary of your credit history. It will list all the recent times you’ve applied for loans, any loans you have currently or that have been closed and the details regarding your payment history on these loans. It also tracks if you have any judgments or collections and whether they are still outstanding or have been paid.

What is a credit score?

Your credit score is a number ranging from 300 to 900. This number is calculated using a formula and is used as a guideline for the condition of your credit, but is not the only factor in what lenders use to determine whether they are going to offer an approval for you. Your score will fluctuate month to month depending on what type of activity there has been. If you make all your payments on time, and nothing negative like a judgment, collection, or late/missed payment, then your score will stay the same or increase. If you have missed payments or have collections and judgments appear on the report, you can expect your score to decrease.

How is my credit score calculated?

Your credit score is based on a number of factors, but overall, it is calculated to determine risk. It is unknown exactly how much weight is behind each of the factors below, but we do know they are factors in how lenders decide whether to approve you or not based on how much risk they perceive. Afterall, the lender is borrowing you their money, so it’s reasonable that they put these checks and balances in place in order to ensure they receive their lent money back.

Factors that can affect your score:

  • How long have you had credit
  • How long each loan or “trade line” has been in your report
  • How much the balance on your credit card(s) are
  • If you miss payments
  • The amount of your outstanding debts
  • Being near, at, or above your credit limit
  • The number of times you have applied for credit recently
  • The type of credit you are using (Revolving payments, installment, lines of credit, credit cards etc.)
  • If your debts have been sent to a collection agency
  • Any record of insolvency or bankruptcy

Another factor to note is that not only is their multiple Credit Bureaus in Canada (Equifax, TransUnion) which will produce different results, but once a lender sees these scores, they use their own proprietary internal scoring systems to determine whether the customer should be approved for a loan. This is done by taking the information provided by the Credit Bureaus and then running it through their own system based on what the client is trying to get approved for. Sometimes these internal checks see something negative that the Credit Bureau didn’t, and unfortunately the lenders aren’t able to offer any approvals.

Who creates your credit score?

In Canada, there are two main Credit Bureaus: Equifax and TransUnion. These are private companies that collect the information, store it, and then charge companies to share this information with them. They only collect information from lenders about your financial history in Canada.

Who can access your credit report?

Don’t worry! Not everyone has access to this sensitive information. Those who can see your credit report in order to help them make decisions about what you are requesting include:

  • Banks, credit unions, and other financial institutions
  • Credit card companies
  • Automotive dealers
  • Retailers
  • Mobile phone providers
  • Insurance companies
  • Government
  • Employers
  • Landlords

Having access to your Credit Report allows them to determine whether they will:

  • Lend you money
  • Collect a debt
  • Allow you to rent a property
  • Hire you
  • Provide insurance
  • Offer a promotion
  • Offer a credit increase on an existing trade line

What is “checking credit” or “pulling a report”?

When someone ask you for permission to “check your credit” or “pull a report”, they are asking for your consent to access your Credit Report. This will result in an inquiry being documented on your credit report. If a lender sees too many inquiries on your credit report, it can lead them to believe you are either urgently seeking credit, which can seem suspicious for a number of reasons, or that you are trying to live beyond your means.

Do I need to consent to a credit check?

Generally, permission is required in order to access this sensitive information. Most provinces require written consent to check your credit report, however in Saskatchewan, Nova Scotia, and Prince Edward Island, a business or individual only needs to inform you they are checking your credit report. Your consent allows the lender to view your report when you first apply, but also allows them to access it anytime afterward while your account is still open. Your consent also allows the lender to share new information about you with Equifax and TransUnion. This will only occur if you have been approved. Lastly, some provincial laws will allow government representatives like judges and police to access parts of your credit bureau without your consent.

What information is on my report?

Credit reports contain personal, financial, and credit history. This information is usually updated every 30 to 90 days.

Personal Information
Your credit report will usually contain:

  • Name
  • Birthdate
  • Current and previous addresses
  • Current and previous phone numbers
  • Social insurance number
  • Driver’s license number
  • Passport number
  • Current and previous employers
  • Current and previous job titles

Financial Information
Your credit report will usually contain:

  • Non-sufficient funds payments or bad cheques
  • Chequing and Savings accounts closed due to money owing or fraud
  • Credit you use (Credit cards, retail store cards, lines of credit, loans)
  • Bankruptcy or court decision against you that relates to credit
  • Debts sent to collection agencies
  • Inquiries from lenders and others who have requested your credit report in the past three years
  • Registered items like liens that will allow the lender to seize the property if the debt is not paid
  • Remarks including customer statements, fraud alerts, and identity verification alerts.
  • Signs of Identity Theft

It will also contain detailed information about your trade lines such as:

  • When your account was opened
  • How much is currently owing
  • How much was initially lent
  • If you make your payments on time
  • If you miss payments
  • If your debt has been sent to a collection agency
  • If you go over your credit limit
  • Personal information that is available in public records, like bankruptcy.

Why does my credit history matter?

It can affect your finances, which will affect your future. Financial institutions look at your credit report to determine whether or not they are willing to lend you money. They also use them to determine what interest rate they are willing to lend this money. As a general rule, the better your credit, the lower your rate. This is because you have less perceived risk of defaulting on the loan if you have a solid history of making smart financial decisions that the lender can access. If you have some hiccups on your credit report, it could be hard for you to get even a $500 credit card, let alone a larger loan or mortgage. It can also affect your ability to rent a property or be hired for a job. Don’t worry though, repairing mistakes in the past is possible, and O’Brians Automotive is here to help with our knowledgeable Sales and Finance teams that have been helping our client base rebuild their credit for over a decade.