How to Read a Credit Report

Your credit report is a written record of data collected by the credit bureaus showing how you have paid your past and current debts. It is used by lenders to assess your creditworthiness, and it's important to review and understand the information on your credit report in detail.

Mistakes do happen and can be very costly if a credit report is left without these errors addressed. In addition, knowing how to read your credit report will help you understand how banks and other lenders see you. In addition, reviewing your credit report can help to identify if fraud has or is occurring.

All Canadians can and should check their credit report at least once per year. You can download a free report from the credit bureau annually.

What Is The Difference Between a Credit Report and Credit Score?

Your credit report and credit score are not the same thing. Your credit report is all of the information that has been supplied by your lenders about you to the credit bureaus. On the other hand, your credit score is a three digit number that is calculated according to a formula using the information in your credit report. Your credit score is typically what is used by lenders to determine your creditworthiness, but the score directly comes from your credit report. Fixing your credit report, either by correcting errors or repaying outstanding debts, will effectively raise your credit score.

What Information Is On My Credit Report?

Each credit bureau has its own way of collecting and reporting the data, so each of your two reports will likely look slightly different. There are three main types of information that are listed: your personally identifying information, credit history information, and credit inquiries.

Personal Information

Your personal information used for identification purposes will be listed at the top of your report. It is important to correct any mistakes you see here to avoid identity theft.

The personal information listed includes the following:

• Your full name
• Your date of birth
• Your current and any previous addresses
• Your current and any previous telephone numbers
• Your SIN (social insurance number)
• Information about your driver’s licence
• Your passport number if you have one
• Your current and previous employers

Double check all the information for accuracy. Make a note of any discrepancies so they can be challenged and corrected later.

Credit History

The majority of the information on your credit report is in the credit history section. This information includes the following:

• All credit accounts and their transaction: credit cards, retail or store cards, lines of credit, and personal loans
• Cell phone and internet service accounts
• Black marks: closed accounts because of fraud committed by the account holder.
• Public/ legal accounts: bankruptcy, legal judgements, and liens
• Credit accounts currently in collections
• Credit requests: from lenders, creditors, landlords, and employers
• Notes about: fraud alerts or identity verification

Credit Inquiries

• Hard inquiries
• Soft inquiries

How To Interpret Your Information

First, look at your personal information and check for errors. Make sure there are no misspellings, transposed numbers, or incorrect information. If there are any errors, you can write to the bureaus and tell them it is incorrect and must be removed. It is generally better to have it removed than corrected.

The information does not have to be complete, only correct. For example, if a maiden name or past address is NOT listed, there is no reason for concern, you can just let that be as it is. Likewise, if there happens to be a clerical error, like a misspelt street name on a prior address, inform them that is incorrect and must be removed. You do not have to tell them to correct it, you can tell them it is incorrect.

Next look at your credit history section. Here you will see every account that is being reported by lenders. Go through each account and check for accuracy. Things like account numbers and dates the account was open should be correct. If there are errors, make a note so they can be challenged later.

The credit bureaus use codes consisting of a letter and number to identify the standing of each account. The first code will be a letter, either I, O, R, or M. The I stands for Instalment. An Instalment account is something like a car loan or student loan. These are loans for a fixed amount and a fixed payment schedule.

The O is for Open. These are accounts where you can borrow up to a certain amount of money whenever you need to. Something like a business line of credit is an open account. R is for a Revolving account. Credit cards are Revolving accounts, similar to an Open account but there is a minimum payment every month that fluctuates according to how much money is owed.

Finally, M is for Mortgage accounts, these are accounts borrowed and secured by a real estate purchase. The second part of the code is a one digit number for 0 through 9. The number represents the current standing of the account and is reported by the lender every month. The codes are as follows (note that 6 is not used):

• 0 = Account is too new to rate, not yet used
• 1 = Paid off within the agreed time limit
• 2 = Late payment, 31-59 days late
• 3 = Late payment, 60–89 days late
• 4= Late payment, 90–119 days late
• 5 = Late payment, more than 120 days late
• 7 = Account is currently in consolidation, or a debt management program
• 8= Repossession
• 9= Bad debt, accounts that have been sent to collections or are in bankruptcy

Again, look for any errors, especially if there are any accounts where you were late paying. Late payments stay on your report for up to seven years and have a dramatic effect on your credit score. If there is an error in the reporting, it must be removed. Look for inconsistencies between the two reports. If a lender is reporting a different status on your loan for the same month on each report, that indicates an error and must be corrected or removed. Listed in this section will be details about your account such as how much you owe and the credit limits if it is a revolving account.

The final section is the inquiries. Whenever someone looks at your credit report, an inquiry is added. Lenders may look at your report when you apply for a loan, or sometimes lenders are able to look at your account for marketing purposes. If you ever get a letter from a credit card company saying you were pre approved for one of their cards, they likely pulled your credit report first.

There are two types of inquiries. Hard inquiries are when you authorise a lender, or perhaps an employer or landlord, to pull your credit. Hard inquiries do slightly decrease your credit score for up to one year, although usually, it is an insignificant amount. Soft inquiries do not have an effect on your credit score but are listed nonetheless. If there are any hard inquiries that you do not recognize, they can be challenged and removed if they are not verified.

What To Do If There Are Errors

Your credit report has important information about your finances that can dramatically affect your ability to get a loan, or even get a job or rent an apartment. The law states that all information on your report must be accurate and verifiable. If you notice any wrong information, you should contact both the reporting lender and the credit bureau. If they cannot verify that the information is accurate, it must be removed.

Check Your Credit Report For Fraud

Inaccurate information may indicate that fraud has occurred in your name. Identity theft happens and it can be devastating if it is not caught early enough and corrected. If you see an account of hard inquiry that you do not recognize, it may be fraudulent, or just a harmless administrative error. Either way, it should be corrected.

If you see an error and suspect it is fraudulent, you should contact Equifax Canada and TransUnion Canada to inform them about the incorrect information, giving them as much detail as you can. In addition, you should have them put a fraud alert on your credit report and report it to the Canadian Anti-fraud Centre.

Fixing Errors On Your Credit Report

The first step to fixing errors is to gather all the information and supporting documents you have. This may include things like statements or cancelled checks that were sent to the lender as payment. The law says that any information that cannot be verified as correct must be removed.

After you have gathered all your documents, contact the lenders and dispute the information in writing with your documents. The lenders will either verify the information is correct or remove it. You should also contact the credit bureaus and dispute the information with them. Again, it must be either verified or removed.

If you spot any errors, you can dispute the information online, although it is advisable that you do it by mail as well as online, mailing the bureaus and lenders copies of your evidence. It’s advisable to add a statement to your credit report. A statement is simply an entry that you can make yourself that explains any negative information on your credit report. It is not always necessary, although it may help in some cases where you have been a victim of fraud or errors in your report.

What To Do If The Negative Information Stays

Ideally, it would be great if you can get all your negative information removed from your report. However, you may be able to get negative information removed if you have enough information that proves it is incorrect, or it is not uncommon that the lenders or bureaus want to take the time and effort to verify it and will simply remove it instead.

Sometimes, the negative information does stay on your credit report though. If this happens, it does not stay on your credit report forever and there are steps you can take to mitigate the damage in the meantime. Accounts will stay on your credit report for up to seven years after the negative information is reported. It will hurt your score, but the degree to which it hurts your score does lessen over time, even before the seven years is up.

If you do have negative information, such as late payments or delinquent accounts, it is best to get them caught up to date as quickly as possible and as best you can. As time goes by, your score will eventually rise. It is important to get one, or ideally more, positive entries reporting to your credit report each month. If your credit is bad enough that you cannot get approved for a traditional loan or credit card, you can very likely get approved for a secured credit card.

A secured credit card is a credit card that is backed by a deposit that you make when you open the account. Let us say, for example, that you get approved for a secured credit card with a two hundred dollar limit. You will have to submit a deposit of two hundred dollars to the lender when the account is opened.

The advantage of a secured credit card is that it will give you one account that is being reported positively to each bureau every month. When you have one positive credit entry every month, regardless of how bad your past history is, your score will inevitably begin to rise. After several months, your lender will likely allow you to convert your account from a secured credit card to a regular credit card and send your deposit back to you.

By this time your score will likely be high enough to allow you to get approved for some other types of accounts as well, although the limits will likely be low and the interest rates will be high. Just remember to use your credit wisely and that it is only temporary. As time goes by, the negative information will fall off your report.

Now that you know how to properly read your credit report, remember to access each of your two free credit reports every year and check them for errors. Dispute any inaccuracies and check for fraudulent activities in your name. Most importantly, remember to use your credit in a responsible manner, so you are always in a position to get approved for quality loans when you need them.