As financial jargon has been thrown at you from left and right over the years, “credit report” may have slipped in there at some point. So, maybe you’re loosely familiar with the term, but do you have any idea what it is, what it’s used for, or what role it plays in your financial profile?
Well, to give you a general idea, your credit report serves as a roundup of everything you do related to credit. It’ll contain things like the length of all of your credit accounts, what your current balances are, how frequently you make your payments on time, and all sorts of other things. Over time, the contents of your report are going to change and grow as you partake in more and more credit-related activities.
So, to help you learn a bit more about this important part of your finances, we’re going to break down what a credit report is, who’s responsible for creating them, why it’s important, how to get a free credit report in Canada, and more.
What is your Canadian Credit Report?
Like we mentioned, your credit report is a document that provides a snapshot of your credit history, and it is one of the most important financial documents you’ll ever have. It’s used by banks, credit card companies, and lenders, etc. to determine your creditworthiness and your ability to repay loans and credit card
First and foremost, your credit report is used to determine your credit score. Your credit score is a three-digit number that ranges from 300 to 900 in Canada, and it is calculated based on the information contained in your credit report. The higher your credit score, the better your creditworthiness and the easier it may be for you to qualify for loans and credit card accounts, generally speaking. If you have a low credit score, some of these things may be a little tougher.
Who Creates your Credit Report in Canada?
In Canada, credit reporting agencies, also known as credit bureaus, collect and maintain credit information to create credit reports. The two main credit bureaus in Canada are Equifax and TransUnion. These bureaus gather information from a variety of sources, including financial institutions, government agencies, and other creditors, to create a comprehensive picture of your credit history.
Banks, credit card companies, and other types of lenders
regularly report information about your credit accounts, including payment history and outstanding balances, to the credit bureaus. This information is used to calculate your credit score and create your credit report. The credit bureaus also collect public record information, such as bankruptcy and court judgments, to include in your credit report.
These credit bureaus in Canada are required to ensure the accuracy and fairness of the information contained in your credit report. For example, the credit bureaus are required to provide you with free copies of your credit report if you request them, and they must correct any errors that you find in your report. In addition, the credit bureaus are required to provide you with the opportunity to dispute any information that you believe is inaccurate.
5 Reasons Why Your Credit Report is Important
Now that we’ve established what your Canada credit report is and who’s responsible for keeping track of this information, let’s take a look at why it’s important and how it can potentially impact your life.
1. Credit Approval
One of the most important reasons that your credit report is important is that it can be a critical part of the process of determining your ability to repay loans and credit card debt. If you have a history of paying your bills on time, your credit report will reflect that, and lenders may view you as a low-risk borrower. On the other hand, if you have a history of missing payments or paying your bills late, you may instead be viewed as a high-risk borrower, and they may be less likely to approve your loan or credit card applications.
2. Loan Rates
Another reason why your credit report is important is that, in some cases, it can impact the rates of loans and credit card accounts. For example, if you have a good credit score, you may be eligible for lower interest rates or lower fees. On the other hand, if you have a poor credit score, you may be required to pay higher interest rates and fees.
3. Credit Eligibility
On top of playing a role in determining the rates of personal loans you’ve applied for
, your credit report can also be used to determine your eligibility for various types of loans and credit card accounts. For example, if you have a good credit score, you may be eligible for lines of credit
, car loans, home loans, and credit cards with rewards programs. On the other hand, if you have a poor credit score, you may be limited to secured credit cards and loans that require collateral.
4. Insurance Rates
Your credit report can also play a role in determining your insurance rates. Depending on the type of insurance and where you live, some insurance companies use credit information to determine your insurance rates, and a good credit score may result in lower insurance premiums. On the other hand, a poor credit score can result in higher insurance premiums, which can make it more difficult for you to afford the coverage you need.
5. Employment Opportunities
Finally, your credit report is important because some employers use it to assess your candidacy when you apply for a job. Many employers use credit information to screen job applicants, and a good credit score can make you a more attractive candidate. On the other hand, a poor credit score can make it difficult for you to find a job, especially if you are applying for positions in finance or other related fields.
How Can I Get a Free Credit Report in Canada?
In Canada, you’re entitled to a free copy of your credit report when you request it from each of the two major credit bureaus, Equifax and TransUnion. There are a few different ways to obtain a free copy of your credit report:
- Online – Both Equifax and TransUnion provide online access to your credit report. Simply visit their websites and follow the steps to request your free report. You may need to provide personal information, such as your name, address, and date of birth, to verify your identity.
- By mail – You can also request a free copy of your credit report by mail by completing the request form on the credit bureau's website and sending it to the address provided.
- By phone – You can call the credit bureau and request a free copy of your credit report over the phone.
Your credit score is a numerical representation of your creditworthiness and is calculated based on the information contained in your credit report. It’s not included in your free credit report, but it can be purchased from the credit bureaus for a fee. You can also look on the internet for services that offer free credit scores.
What can I do to Make an Impact on my Credit Score?
So, what can you do to make an impact on your credit score? Here are a couple of things to consider:
- Pay your bills on time – Late payments can have a major impact on your credit score, so it’s important to make sure that you pay all your bills on time, every time. If you’re having trouble keeping up with your bills, consider setting up automatic payments or reaching out to your creditors for assistance.
- Keep your credit card balances low – High credit card balances can also have a negative impact on your credit score, so it’s important to keep your balances low. Do your best to pay off your debt, avoid taking on more debt unnecessarily, and use credit responsibly.
Keep Close Track of your Credit Report
What becomes clear after going over the important information about how your credit report can affect you, is how important it is to be aware of what goes on in it and to check it as regularly as possible. You’ll want to make sure that everything you see checks out, and if you find any errors, make sure to report these to the credit bureaus and your creditors as soon as possible. In general, your credit report is an extremely essential part of your financial profile, so make sure to keep up with it!