Credit reports and scores are an important part of life as a consumer in the modern world. Whether you consent to it or not, there are two independent credit bureaus in Canada that collect credit history information on how you use credit, how much debt you have built up, and whether you make credit monthly payments on time. The result is a two-part grading system, both a numerical score and a long-form report, which provides detailed information on how you behave with credit. If you’ve ever fallen on hard times, this can spell disaster for your financial future no credit card or bank is going to look at your situation favorably to offer personal credit. Luckily, you aren’t alone, and you aren’t out of options, either.
How Does Credit Work in Canada ?
The modern credit reporting system originated in the United States as a way of allowing financial institutions to determine whether they wanted to do business with a consumer or not. That sounds like a basic and understandable thing—you wouldn’t loan money to a total stranger sight unseen, would you? Unfortunately, under the auspices of the independent credit bureaus, credit data collection has become something of a runaway train.
You don’t get to opt in or out of the credit system. If you borrow money from any financial institution, whether it’s auto loan or a credit card, you automatically start getting tracked by a credit bureau to see if you make those repayments or go over your credit limit. Even if your bank balance is OK now, your credit history can still go against you. As of 2017, there are two credit bureaus operating in Canada: Equifax and TransUnion. These are international companies that crack consumer credit and debt in multiple countries, but your Canadian credit report and score are only applicable in Canada.
That’s because different national governments have different laws governing how the credit bureaus are allowed to behave. Canada’s system is relatively consumer friendly, with a good amount of government information and assistance available to those who are in the credit system.
Your credit report and score are not fully public information, but a wide range of businesses and individuals are allowed to check your credit as a way of verifying whether you’re trustworthy or not. When you apply for a job or try to rent a new apartment, your prospective new boss or landlord may ask to check your credit score. Banks, insurance companies, mobile service providers and even government agencies can also take a look at your credit score, but you usually have to give permission first. Declining to give permission can look quite suspicious, which isn’t exactly fair.
Your credit report will show all the missed payments, bad cheques and other painful moments from your financial history. This information is summed up with a numerical score ranging from 300-900. Those with no credit history to speak of start at 300 and can work their way up to the highest score of 900 by using the system just right (i.e., always making on-time payments, having more credit available than used, having different types of credit and demonstrating competence over a long period of time). The good credit/bad credit threshold falls at 650—if your score is below this number, lenders will generally look at you with skepticism. If you’re higher than that, you’ll be seen more favorably.
These perceptions enhance incrementally the higher or lower you go. A credit score of 400, for example, will generally be seen less favorably than a credit score of 630. If your score is below 650 even by a few points, though, most lenders won’t take you seriously as an applicant. That’s where bad credit car loans and other special financing options come into play for people who’ve fallen on hard times.
Factors That Can Affect Credit Without Your Knowledge
In September 2017, it was announced that Equifax, one of Canada’s two credit bureaus, experienced a widespread hack that exposed the financial details of several hundred million customers in Canada, the UK, and the USA. The hack mostly targeted Americans, but the fact that it happened at all, and the fact that Equifax’s response was pretty lacklustre and incompetent overall, shows just how risky the credit system can be for those who are entered into it.
Why does this hack matter ? Well, when a criminal gains access to your personal identifying information, they can then open up credit accounts in your name. The goal here is to steal money, not to build your credit up and make your financial life healthier. Identity theft and identity fraud can absolutely destroy your credit because the people who open up lines of credit in your name aren’t going to pay the bills on time (or at all).
That’s why it’s so important for you to check your credit report on a regular basis. Yes, it can be painful to do this if you’ve been through a rough patch and it shows in your financial history. But not monitoring your credit can make things worse. You can request a free copy of your credit report from both Equifax and TransUnion. Equifax refers to this document as your “credit file disclosure,” while TransUnion calls it a “consumer disclosure.”
You’ll want to look at both reports once a year to make sure there’s no fraud detected on the account. The Financial Consumer Agency of Canada recommends alternating between reports from each bureau every six months. This way you can check your reports from the different bureaus once a year but still stay informed on a semiannual basis.
If you do see some suspicious activity on your credit report, you’ll want to start the dispute process right away. “Suspicious activity” in this case means any loans with banks you don’t recognize or credit cards you aren’t familiar with. It can be helpful to check with a spouse to make sure there hasn’t been any unspoken financial decision-making going on behind the scenes, but if you’re in the clear in that regard, you’ll want to make sure the fraudulent loans or credit cards are removed from your report.
Sometimes, though, the bad information on our credit reports is just a fact of life. Finances are tough, especially if you go through a period of bad luck or make some decisions that turn out to be poorly timed. At DriveThruFinance, we understand your predicament and we want to get you back on the road even if your score is lower than 650. Bad credit doesn’t mean you’re a bad person. You deserve to move on and rebuild your credit and we can help.