Building A Better Credit Record

If you've ever applied for a credit card, a personal loan, or insurance, there's a file about you. This file contains information on where you work and live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy.

Companies that gather and sell this information are usually called Credit Reporting Agencies (CRAs). The most common type of CRA is the credit bureau.

What exactly is a credit file?
Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you - including banks, finance companies, credit unions, retailers - send specific factual information related to the financial transactions they have with you to credit reporting agencies.

The credit reporting agencies organize and store this information so that it can be referred to in the future, with your consent. Your credit file contains all the information that a credit reporting agency has received from companies that have extended credit to you.

For example, it might include a listing of your credit cards or lines of credit, along with a history of whether or not you have paid on time. If you have declared bankruptcy, that fact will also appear. If you did not pay a bill and your account was sent to a collection agency, that will show on your credit file. In summary, your credit file is a report of your financial history and performance with credit grantors.

Why is my credit file important?
When you apply for credit or want to open an account, the credit grantor wants to be sure that if they lend you money they will be paid back. The more your credit file demonstrates that you pay your debts on time, the more desirable you become as a potential customer.

If you have fallen behind in the past, a credit grantor wants to see how you have been managing your debt since then. Your credit file also shows how much you have already borrowed. Credit grantors want to evaluate your financial capacity to make monthly payments. No responsible lender will want to over-lend or encourage customers to take on more debt than they can pay back.

What information does a consumer credit report contain?
Here is a general overview of the different sections in a consumer credit report:

1. Personal Identification - Contains key identification information, such as your name, address, birth date and Social Insurance Number (SIN).
2. Inquiries - Lists all individuals or organizations that have requested a copy of your credit file in the past three years.
3. Public Record Information - Contains information about secured loans, bankruptcies and/or judgments.
4. Third-Party Collection Agency - Contains information about any involvement with a collection agency trying to settle a debt.
5. Trade Information - Provides details of your credit transactions and shows whether payments are being made. Each of these "trade" items is evaluated by the credit grantor.
6. Consumer Statement - This is where you can add a brief comment about any information in your file. For example, you may want to explain that you suffered a setback due to illness, temporary unemployment or other extenuating circumstances.

How is this information gathered and who keeps it?
Credit information is gathered by credit reporting agencies, sometimes called credit bureaus. They store and maintain credit information about individuals by banks, financing companies, auto leasing companies, credit card companies, retailers, etc.

Credit grantors update individual credit files regularly by providing information to credit reporting agencies about their customers' credit and payment activities. This ensures that credit files remain up-to-date and as complete as possible.

Other sources of the information contained in your credit report can include collection agencies and public records from courthouses across the country.

Whether you make or miss a payment, this fact will be added to your file. When you give permission to a credit grantor to look at your credit file, this history is available for them to review.

Who can access my credit file?
There are very specific laws as to who can review your credit file and for what purpose. An individual or company may only obtain a copy of your credit file with your consent or after having told you that they will be reviewing your file. A company must have a legitimate business reason and a permissible purpose to obtain your credit file.

When you apply for a loan or credit card you are usually asked to complete and sign an application form. An application normally includes written consent that gives permission to the credit grantor to check your credit file when you first apply and for as long as the account is open. In addition to your name, an application often asks for your date of birth, your address and a previous address if you've recently moved - all of which helps to locate your credit file at a credit reporting agency.

Each time a member of the credit bureau requests your file, the request is noted on your file as an inquiry. You can therefore see a complete record of who has requested your credit file and when.

A credit reporting agency may only provide a copy of your file when the request relates to the extension of credit, collection of a debt, housing rental, an application for employment or for insurance purposes. Since your credit file contains only factual information, it is important to remember that each of the companies requesting your credit file will interpret those facts in its own way to arrive at a decision.

Of course, you also have the right to obtain a copy of your credit report and ensure it is accurate and up-to-date.

How can I make sure my credit file information is accurate?
Request a copy of your credit file. If you check your credit file periodically, especially before making any major purchases or applying for credit, you can make sure there are no surprises ahead. If you believe your file contains an inaccuracy, you can take steps to correct it. Simply provide information about the disputed item to the credit reporting agency.

If you find unfavourable, but accurate facts in your file, you may be able to prevent a potentially embarrassing situation by discussing this with the lender when you fill out an application. You can also initiate immediate action to re-establish good credit.

How can I establish and maintain a good credit rating?
There are a few simple ways to keep a solid credit rating. First, pay your bills promptly and always meet payment due dates. Borrow only the amount you can afford to repay. Draw up a budget to control your spending. If you have debts, pay them off as scheduled or even ahead of schedule. And finally, review your credit file regularly to stay informed about the details in your credit file.

Should I go to a Credit Repair Clinic to fix my poor credit rating?
You may see advertisements for Credit Repair Clinics in the classified sections of newspapers, with claims that they can "fix" bad credit reports, for a fee. Only responsible credit practices over time can improve a poor credit history.

Credit counseling organizations are not the same as Credit Repair Clinics, and can offer you professional advice on how to improve your credit practices.

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