understanding a credit score, viewing a report on an iPad

A Guide to Understanding & Repairing Your Credit Report and Credit Score

Get an in-depth understanding of your credit report as we answer some of the most common questions regarding credits scores and credit repair!

Having a good credit score can be a determining factor for many situations such as future employment opportunities or when applying to rent an apartment. If you’ve ever applied for a credit card or borrowed money, then you have a credit report and a credit score. Understanding how they work is a necessary step towards stabilizing your financial situation and ensuring that you don’t run into any negative surprises in the future. Here’s what you need to know about credit scores, credit reports and making steps towards repairing your credit.


What’s a credit score?

Lenders use your credit score to determine your financial responsibility. This helps them assess how risky it would be to lend you money. Scores range between 300 and 900. A score over 600 is generally considered fair, while anything under 550 is bad. Since lenders set their own minimum rating, however, there’s no universally accepted score.


How is my credit score calculated?

Here’s what goes into calculating your credit score:
  • Payment history (35%). Collections, missed or late payments and bankruptcies will severely hurt your credit score.
  • Debts (30%). The more money you currently owe and have yet to pay back, the lower your credit score will be.
  • Credit length (15%). The longer your credit history is, the more it says about your financial habits. Short histories usually mean a lower score.
  • New credit inquiries (10%). A steady flow of requests to check your credit, especially recent ones, can negatively impact your score. 
  • Credit diversity (10%). Having many different types of credit speaks to your ability to manage your finances well.

What’s a credit report?

A credit report is a summary of your financial history used by lenders to decide whether they should grant you credit. It does not  provide information about your ethnicity, income, purchases paid in full, medical records or criminal records. Here’s what’s on it:
  • Basic identifying information, including your name, address, social insurance number and employment history
  • Your credit payment history, which is a list of payments you’ve made to creditors
  • Public records, such as court judgements or bankruptcies, which may impact your credit worthiness
  • A list of recent inquiries made by creditors or persons authorized to access your credit information, either by you or by law 

Each item on your report is assigned a credit rating ranging from 1 to 9. A rating of 1 means all payments were made on time, while a rating of 9 means payments are never made or that a consumer proposal was submitted to the lender. Generally speaking, negative information stays on your report for six years, but there are some exceptions.

What negative aspects should I look out for?

Payment history and existing debt are by far the most impactful factors when it comes to evaluating your financial responsibility, and they’re the first things lenders will look at. Late and missed payments, along with bankruptcies and consumer proposals, are likely to make it difficult for you to borrow money. If you already have considerable debt, lenders may think you’re unlikely to pay them back.

How can I fix errors on my credit report?

Since your credit report is what determines whether you’ll get a loan or a credit card, being able to spot errors and knowing how to fix them is important. Here are some common types of errors you should look out for:
  • Errors in your personal information, such as the wrong name or date of birth
  • Errors in accounts and credit cards, such as a payment made on time but shown to be late
  • Presence of negative information past the maximum number of days it’s supposed to be visible
  • Accounts that you never opened, which could indicate identity theft and fraud

If you think there’s a mistake on your report, bureaus will correct the information for free. Start by gathering all relevant documents, then fill out the required forms. If the lender agrees there was a mistake, it’ll be corrected. If not, there are a number of steps you can take, including making a complaint to the lender, attaching a customer statement to your report or filing a complaint about the credit bureau itself.

If you have reasons to worry about fraud, you can contact a credit bureau to set up a fraud alert. This way, lenders will contact you to confirm your identity before approving credit applications. The Canadian credit bureaus are Equifax and TransUnion, and you can request a free credit report to be sent by mail, otherwise you can pay a fee to see it immediately.

What steps can I take to repair my credit?

Repairing your credit is possible, but you’ll need to get some help. Your first step should be to seek credit counselling. This allows you to understand your situation and your options. Some people will benefit from a few changes in their habits, while other may need to consider getting a consumer proposal, which is an agreement between you and your creditors to pay back a portion of your outstanding debt in exchange for forgiving the rest.

Keep in mind that repairing your credit requires adopting new financial habits and sticking to them. In some cases, it can take up to three years to get your credit score above 600, depending on where you started.

Our Licensed Insolvency Trustees Are Ready to Help!

If you need help managing debt or assistance with repairing your credit, you can trust the licensed insolvency trustees and credit counsellors at D & A Macleod Company. Don’t hesitate to call us today to schedule a free consultation. Let us help you find a new beginning™ and begin your journey on the path to financial freedom!
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