If you want to borrow money to buy a home, car or any other big ticket item, you will need to have a credit history before the financial institution will lend you money. Your credit history (called a credit report) is held by at least one of Canada's two major credit-reporting agencies: Equifax and TransUnion. Your credit report is one of the main tools lenders use when they decide whether or not to lend you money. So, like your senior year report card back in high-school - and whether it scored you entrance into that post-secondary school of your dreams - you had better pay close attention as to how others view you, and whether you represent a responsible - or risky - choice.
The credit report lowdown
Your credit report contains the following information:
- Personal information such as your name, address, social insurance number, employers, date of birth and telephone number.
- Information related to any loans you have such as a credit card, mortgage, or secured or unsecured loan.
- Your payment history including bad loans and late payments.
- Banking information about your various accounts including any bad cheques you may have written (they can come back to haunt you).
- Public records such as a bankruptcy or judgment from a law suit.
- Any people or organizations that have inquired about your credit.
What? I cancelled that account years ago?! - how to look for errors
Once you start borrowing and have a credit file opened, it is very important for you to regularly check to ensure that your credit report is correct. You can check your report by phone, fax, email, mail or Internet. There is generally a fee if you check online, but you can get your report for free by using the mail. When you do get your report, look closely at the data from the credit reporting agency to see that it is correct. It goes back to your school days: you would never accept a C if you knew you deserved a B. You have to be proactive.
Watch out for the following in your credit report:
- Wrong mailing addresses
- Incorrect Social Insurance Number
- Signs of identity theft
- Errors in your credit accounts
- Late payments
- Unauthorized inquiries
You have a right to correct any errors you find. The correction process, as well as instructions on ordering your credit report, can be found on the agencies' websites at equifax.ca and transunion.ca.
A woman who gets no credit
And lastly, do not fall prey to the status of having zero credit. It may not be bad credit, but it will signal a cautionary sign to any lending parties. Like that newbie eBay seller, there is just no reputation, good or bad. So, if you're new to it all, get a line of credit, car loan, and/or credit card in your name only and always pay at least the minimal amounts, plus some extra if you can. Building a good credit rating takes time, but it means having greater access to funds down the road to do all the things you love...like leave that career that is leaving you unfulfilled to start your own business or even travel around the world. If you have good credit, the doors of possibilities open.
This article was modified with permission from the writing and expertise of Terri Williams, CFP, Vice President, Marketing and Brand Management, Global Wealth Management and Commercial Banking at Scotiabank.