Understanding your credit history

Original Image  by ClintJCL.  CC BY-NC-SA

Credit plays a large part in establishing yourself and your family in Manitoba. You will find that institutions will check your credit history when you need to purchase a house, a car, and especially if you wish to embark on building a business in Manitoba.

What is a credit history?

Investopedia defines credit history as “a record of a consumer’s ability to repay debts and demonstrated responsibility in repaying debts”. It is a documentation of a person’s credit accounts, details of bill payments, and how he or she uses money to deal with loans and credits (borrowing habits).

Your credit history is composed of a credit report and a credit score. These are reported mainly by two credit-reporting institutions or credit bureaus in Canada – Equifax and TransUnion. The credit report contains information on your bank accounts, credit cards, lines of credit and loans, if you’ve had a bankruptcy or a court decision against you that relates to credit, if you have issued a “bad” check, and the list of people and companies that have made inquiries about your credit. Your credit score, on the other hand, indicates how much credit risk you represent. In Canada, credit scores range from 300 to 900. The higher your credit score, the better for you as this represents less risk. When you are given a credit rating, it shows you three things: the score, how you fare compared to the rest of Canada, and how creditors might rate your creditworthiness (very poor, poor, fair, good, or very good).

Why is it important?

Not only will your credit history matter when you apply for credit, loans or mortgages. According to the Financial Consumer Agency of Canada (FCAC), it can be checked when you are applying to rent a house or when you are getting hired for a job. Also, your credit history will show if someone has tried to steal your identity or opened other credit cards and loans in your name.

The factors that can affect your credit score include:

• how long you have had credit
• your history of making payments (Do you carry a balance on your credit cards? Have you missed payments?)
• your outstanding debts (Are you close to your credit limit?)
• the number of recent inquiries about your credit history (Are you trying to get more credit?)
• the types of credit you are using
• any record of bankruptcy or your debts being sent to a collection agency

How to get a credit report

It is recommended that you get a free credit report once a year to monitor it and to check for errors or signs of identity theft. Some banks offer this for free once a year. You can ask your financial institution if they can assist you. However, some reports will not include your credit score (you will have to order it for a fee). You can ask for a “credit file disclosure” from Equifax Canada or a “consumer disclosure” from TransUnion Canada by mail, fax, telephone or in person. There is a fee if you choose to access it online. Go to this FCAC page for more information on ordering your credit report.

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