Your Questions Answered
We have tried to answer the most common questions about credit ratings. If you haven't found the answer you want here, please contact a credit specialist.
What is a credit history and how do I establish one?
Your credit history is a measure of how reliable you are when it comes to repaying your debts. It's not something that's established by your bank, a credit card company or a credit bureau. It's established by you.
If you've ever applied for credit in Canada, you will likely have a credit file, kept at both of the country's two main credit bureaus, Equifax and Trans Union of Canada.
The information in your credit file includes your birth date, address and employment information in order to identify you, as well as a comprehensive history of the credit you use now or have used at any time in the past 6 years, or even longer if you've ever declared bankruptcy. This history is kept up to date by the banks, credit card companies, retailers, auto lease financing companies and other establishments that provide you with credit.
The questions and answers below will tell you more about your credit history and how it affects you as a borrower.
What is a credit bureau?
Credit bureaus are independent companies whose business is keeping up-to-date records on the way every individual and business in Canada manages credit. They operate under both Federal and Provincial laws that regulate how they may store and update this information.
Their customers are the financial institutions and other companies that extend credit to you. Before approving you for credit, most financial institutions will want to know how well you manage credit. Rather than check with each company that has ever lent you money, they will ask one or both of Canada's credit bureaus for a credit report.
How long does information stay on my credit file?
Depending on provincial legislation, negative items on your credit file will be deleted after either six or seven years. Generally, where there is no negative information, loans or credit that you have paid off remain on your file permanently.
What is a credit report and what information does it contain?
When a lender asks for a credit report on you, the credit bureau will extract information from your credit file. The report will include information that identifies you, a detailed history showing how you manage your credit, any judgments against you, any bankruptcies you may have experienced, a list of companies that have enquired about your credit history and anything else that may be important to a lender.
A credit report will not include any medical histories or information about your race, creed or political affiliations.
Who gets to see my credit report?
Only members of the credit bureaus may request a credit report - and they can only do so with your permission. Most loan applications will include a statement that gives the lender permission to request your credit history from the credit bureaus from time to time.
How does a lender determine my credit rating?
Most lenders will assign an "R" (for Revolving credit, such as a line of credit ) or "I" (for Installment loans) rating to each item in your credit report. For example, a rating of R0 means the particular item is too new to rate. A rating of R1 means you pay within 30 days of the due date - and a rating of R9 reflects a bad debt.
As you can see, if you consistently pay at least the minimum amount owing on your credit cards or lines of credit, don't miss making loan or mortgage payments and pay all your other accounts by the due dates, you will likely receive a good rating on all your credit. In contrast, if you often miss payment dates, your credit history will most likely result in a poor rating and perhaps a rejection from the lender.
Can a good rating lower my interest rate?
If you maintain a good credit history, lenders are more likely to consider you to be a lower risk. Depending on the borrowing option you are applying for, they may be prepared to offer you lower interest rates because they are confident that you will repay your credit. When granting credit to someone who has a weak rating, they may want to charge a higher interest rate to protect themselves against the higher risk.
Will a major life event affect my credit rating?
If you get married or divorced, have a child, buy a home or lose your spouse, your total debt service ratio may change. This is the percentage of your gross income that goes towards paying off your various debts. A life event that reduces your income and/or increases your expenses may make a lender less comfortable about offering you new credit. In contrast, a life event that increases your income and/or reduces your expenses may make you even more credit-worthy.
How can I be sure my credit history is accurate?
The information in your credit file is provided to the credit bureaus by the companies you borrow from. As a result, it should be accurate and up to date. To make sure it is - and to ensure that you have not become the victim of identity theft - it is a good idea to check your credit history on a regular basis.
Canada's credit bureaus will send you a copy of your credit report by mail, free of charge. Alternatively, for a fee, they will allow you to see it online.
For more information, you can contact the credit bureaus directly:
Equifax: 1 800 465-7166
www.equifax.ca
Trans Union of Canada 1 866 525-0262
www.tuc.ca
What can I do if there's an error on my credit file?
The credit bureaus give you the opportunity to correct any erroneous information on your file. If you follow their procedures, they will investigate your complaint and make any amendments necessary. If you're still not satisfied, you can add a brief statement to your file, explaining the item to prospective lenders.
How can I establish a good credit history?
The first time you ever apply for credit, you begin to establish a credit rating history. The simplest way to keep it positive is to always make at least the minimum payment on all your credit, on or before the due date.
What is a "personal reference"?
Often, a lender's credit application will ask you to provide a personal reference. This would be the name of somebody who know you and who can vouch for you.
What can I do if my credit history is poor?
Firstly, establish a strong repayment pattern as soon as possible. Until you do this, your poor credit history will result in lenders being reluctant to offer you additional credit. If they do offer you credit, they may require security, such as cash collateral or a qualified co-signer.
You may also want to talk to a knowledgeable RBC Royal Bank credit specialist. They can answer your questions, provide guidance and suggest ways to improve your credit history.
Other questions?
Ask an RBC Royal Bank credit specialist for answers.
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