Millions of people have an erroneous perception of how a credit report works.
Before accepting your file, a lender must confirm your solvency. In order to do so, the lender will consult your credit report, which is drawn up by two firms, Equifax and Trans-Union. These firms receive millions of bits of data from millions of citizens, provided by the creditors and suppliers they deal with.
This means your credit report is updated very often, but some studies have shown that 25% of reports have inaccuracies. Your credit report is what lenders use to grant you a loan or mortgage, and determine the interest rate accordingly to the risk you represent. The more positive elements in your report, the more Equifax or Trans-Union will grant you a favourable credit rating, the less it will cost you to borrow money.
However, many myths and urban legends persist about credit reports. Here are a few.
1. I’ll be penalized if I consult my report.
False. Consulting your report isn’t the same as filing a credit application. On the contrary: the more you consult your file, the better you’ll know it, and the easier you can correct false information, or even fraud. There’s also no impact when the taxman or the police consult your file.
2. Anyone can access my report.
False. Your report is confidential, as is your credit rating. A creditor must have your permission to access your credit report. You will need to produce some identification to access your Equifax or Trans-Union report.
3. I have to pay to access my report.
False. You can get a copy of your credit report (but not your credit rating) through the mail for free by writing Equifax or Trans-Union.
4. Paying all my accounts and loans on time ensures I’ll have a high credit rating.
False. While it’s a good habit, it only accounts for about 30% of your credit rating. Lenders and creditors view too many debts, or a high debt level near or exceeding your repayment ability, as a ticking time bomb.
5. Religiously paying the minimum balance on my credit card guarantees a high credit rating.
False. All the experts agree: you have to pay off your credit card balance in full each month prior to the deadline on your statement. IF you don’t, you will be considered as undisciplined, especially if you are borrowing on a credit card at 19%, instead of on a line of credit at 8%.
6. Being late on my minimum credit card payment won’t have an impact on my credit rating.
False. Even if it’s only 24 hours, late is late. Your credit report is updated by computers, whether you owe $2 or $2 million.
7. Consistently paying in cash will help me get a good credit report.
False. A credit record is built based on your payment history. Since cash purchases are not listed, they cannot contribute positively or negatively to your score. So it might be better to use a credit card and simply refund the balance before the due date. In addition to potentially benefiting from the advantages (point systems, guarantees) offered by issuers and not paying interest charges, you demonstrate sound management of your payments.
8. Paying a debt erases it from my credit report.
False. It stays on your file for years, and you cannot make any changes, especially when it comes to delays or defaults. Only erroneous information, whether it affects the credit history or your personal information, is removed or corrected with supporting evidence.
9. I can make changes to my credit report myself.
True and false. True for your personal details; False for any notes on file. You must ask the creditors concerned to send the corrections to Equifax and Trans-Union.
10. Equifax and Trans-Union credit reports are identical.
False. These firms occasionally rely on different creditors to update your report. That’s why you need to check both reports, ideally every year or two.
11. Making a lot of money will have a positive impact on my credit rating.
False. Even rich people get turned down for loans. Your credit rating isn’t based on your revenue (salary, holdings, etc.) but on your credit history. Only the lender will consider your revenue, especially for considerable loans.
12. Declaring bankruptcy will destroy my credit report.
False. You will be given an R9 rating (R9 being the worst, R1 being the best). That's all. It will be on your credit file for seven years. But several bankrupts rebuild their credit in the first year after the bankruptcy, as good credit habits will quickly increase your rating.
13. My credit report is bad; it must be negatively impacting my spouse’s.
False. You can declare bankruptcy without it affecting your spouse’s credit report. Unless you have late or unpaid joint credit cards or loans…
14. It’s impossible for me to challenge a creditor’s note in my credit report.
False. If you believe the information to be unfair, incomplete or wrong, and the creditor refuses to correct it, you can add your own explanatory note.
15. Making numerous credit applications will negatively impact my credit rating.
True. Even if one or many of these applications are accepted. Avoid shopping your loans and mortgages among too many lenders, and turn down the retail store’s credit card, even if it does give you a 10% discount on your next purchase. Make sure you have no more than two credit cards in your wallet.
16. Improving my credit habits will increase my credit rating.
True. If you go from undisciplined to a paragon of payment, your rating is sure to rise.
17. Having a lot of debt will increase my rating.
False. The ratio between your credit balance and your credit card or credit line limit has the biggest impact on your credit rating. Bring your balance down to zero each month.
18. I’m rich. I’m debt-free. I can buy a jet from Bombardier.
False. Even if your credit report is spotless, it’s the lender who determines your borrowing limit. And everyone has a limit, that is, unless you’re Bill Gates or Warren Buffet…
19. My debit card has an impact on my credit report.
False. Your debit card lets you access money you already have. It’s not credit, therefore it doesn’t show up on your credit report.
20. My report will be erased in seven years.
False. A bankruptcy registration disappears from the credit bureau after 7 years. Other particulars disappear after 3.5 or 6 years. Standards differ between Trans-Union and Equifax. Only time and good credit habits can boost your credit rating.
21. I’m changing providers, that won’t impact my credit rating
False. If you’re switching from Bell to Vidéotron, getting pre-approved for a mortgage, changing credit cards, getting a new one, increasing your limit, purchasing a financed vehicle, all of this information will be recorded in your report.
22. Refusing to pay my cellphone bill will not affect my credit report.
False. All payments and non-payments of cellphone bills are systematically reported to Equifax and Trans-Union agencies.
- Many tips and tricks can improve your credit score