Credit Basics

You probably review your finances and check your financial portfolio regularly, but how often do you review your credit file? If you haven’t seen it in a while — or if you have never seen it at all — it’s time to take a look at it.

Not Sure What a Credit File is?

Think of it as a window into your credit history that lenders use to assess your creditworthiness. You want them to have the best possible view of you, and you can’t necessarily do that if you don’t know what your credit report says about you.

So get some insight about the information in it — and always review your report at least six months before you start shopping for a mortgage, car or any other large purchase. It can take that long for the credit reporting agencies to make a change to your report and, by the time a lender reviews it, you’ll want to have corrected any inaccuracies that might negatively affect your loan rate.

Want another good reason to check your credit file?

Identity theft and credit card fraud are crimes on the rise. If you’re unfamiliar with your credit report, you may not even realize that someone has assumed your identity or opened new accounts in your name until they default on loans, or collection agencies start calling you.

If that sounds daunting, that’s because it is. The recovery process can take a long time if you have to re-establish both your credit and good name. But with Identity Guard® proactively monitoring your credit information, you will be able to respond quickly to potential issues. Identity Guard alerts you to changes to the information in your file.

Why should you review your credit report from both of the credit bureaus?

Although each credit reporting agency — Equifax® and TransUnion® — records information it receives from your creditors, you can’t control which bureau your lender uses. Therefore, it’s best to prepare yourself for various outcomes by checking the accuracy of your information at both agencies.

What is a credit score and why is it so important?

A credit score, ranging from 399 to 862, is based on certain variables in your credit file. This number helps to determine your creditworthiness because it takes into account: how many lines of trade you have open; how many times you’ve made late payments; and if you’ve had any payment delinquencies.

Lenders then use this information as an objective measure to get the big picture of how you handle your credit — your creditworthiness. They may deny your loan or charge you a high interest rate if you have a low score, whereas, if you have a good credit history, you may qualify for lower interest rates, which can mean big savings. In fact, lower loan rates can mean thousands of dollars in your pocket over the years.

6 Steps to Better Credit

  1. Pay your bills on time.
    Creditors scrutinize your credit history, so paying your bills on time will reflect well on you. If you have a record of delinquent payments, you might want to consider credit counseling to learn how to better manage your finances.
  2. Manage your debt.
    Your debt-to-income ratio — the percentage of your income that goes to paying off debt — is another gauge of your financial health. You can calculate this ratio by dividing your monthly minimum debt payments (excluding mortgage) by your monthly take-home income. If your debt payment absorbs:
    • Less than 20% of your income, you are doing well
    • Between 20% to 35%, consider reducing your overall debt
    • More than 35%, consider credit counseling or some type of aggressive debt-reduction strategy
  3. Don’t over-apply for credit.
    Limit the number of loan applications you submit. Each bid shows up as an inquiry in your credit report. Even if you’re just comparison-shopping for the best rate, too many inquiries can be viewed as a desperate bid to obtain credit to get out of financial trouble.
  4. Shred your documents.
    Destroy any piece of paper containing your Social Insurance Number or credit card numbers. Thieves often go through garbage to find personal information they can use to commit fraud.
  5. Don’t give your personal information away.
    Never include your Social Insurance Number on your cheques, driver’s license or health insurance card. Be extremely cautious about how you use your SIN. It is your key personal identification number and, therefore, a gateway to your personal identity. If you are required to provide this information, always ask if there is another option.
  6. Check your credit reports regularly.
    The only way to protect your name and credit is to be proactive. With the rise of identity theft cases, it is important to review your credit files and report any inaccuracies you find to the major credit reporting agencies.

Check Your Credit Report Carefully to Verify Your:

  • Name
  • Address
  • Social Insurance Number
  • Date of Birth
  • Credit/Charge Accounts
  • Outstanding Balance
  • Account Limits
  • Payment Histories
  • Inquiries

Note: Negative credit information remains in your report for seven years.