Most of us have heard about credit reports and credit scores, and how important they are to securing loans and lines of credit.

But many Canadians aren’t sure about who collects and reports this information, how they can obtain it, and what to do if the information within the report is incorrect. We’re going to demystify credit reports and credit scores by answering these 5 important questions.

1. What are credit bureaus?

Credit bureaus are agencies that provide credit reports on consumers, based on their debt repayment record. These reports include data on whether they repay loans, as well whether they do so regularly and on time. These reports are available through Equifax Canada and TransUnion Canada, and help lenders make decisions on approving loans.

2. What is a credit score?

Credit scores are numbers on a scale between 300 and 900 that sums up a consumer’s credit rating. A higher number the consumer is less of a credit risk, making it easier for them to get credit, often at lower rates. It also helps improve the chances of approval for mortgages and automotive loans, as well as access to instant-approval credit cards.

How do Equifax and TransUnion calculate the scores? No one really knows. They keep their algorithms a closely guarded secret to prevent fraudulent reporting.

It’s important to note that credit scores are designed to help banks more than they are to help you. Many financial experts suggest that carrying a monthly balance on your credit card, as opposed to carrying a zero balance, actually improves your credit score. Banks prefer you tend to carry balances because they make money off accrued interest.

Although lenders will take credit scores into consideration when reviewing a loan application, banks also give weight to their own information. Credit scores don’t provide information on income levels or steady employment, both factors that play into their decision. Even if you’ve been discharged from bankruptcy, which can kill your credit score, you can still qualify for a mortgage if you can prove financial discipline since the discharge.

3. How long do negative entries stay on my credit report?

Negative information on your credit report can include missed debt payments, bounced cheques, and bad accounts that were sent to collections. In most cases, this information stays on your credit report for 6 years, although it can vary due to individual circumstances.

For example, if you filed a consumer proposal that was accepted by your creditors, Equifax will remove the proposal from your credit report 3 years after you’ve paid off the debt under the terms of the proposal. TransUnion, however, will remove the proposal from your credit report either 3 years after you’ve paid off the debt under the terms of the proposal, or 6 years after you sign the proposal, whichever is sooner.

Where you live in Canada also factors in on how long a negative item appears on your credit report. In the case of bankruptcy, both Equifax and TransUnion will generally remove a bankruptcy from your credit report 6 years after the date you’ve been discharged. However, if you live in New Brunswick, Newfoundland and Labrador, Ontario, Prince Edward Island, or Quebec, TransUnion will remove the a bankruptcy from your credit report after 7 years.

If you declare bankruptcy more than once, the bankruptcies will appear on your credit report for 14 years.

4. Can I obtain my own credit report and why should I care?

Credit reports are easy to obtain from both Equifax and TransUnion. Credit reports and credit scores are free if you agree to obtain them by mail. Simply fill out the online forms and provide two pieces of acceptable identification, such as a driver’s license or passport.

You can also order your credit reports by telephone, or pay a fee to see it right away online. TransUnion allows you to order your credit report online once per year at no cost. Requesting credit reports won’t affect your credit score.

To make sure you request the correct report, please note that Equifax Canada refers to your credit report as “credit file disclosure”, and TransUnion calls it a “consumer disclosure”.

Why would you want this information, other than out of curiosity? Going into a lender with your credit score already on-hand can help you negotiate lower interest rates. One strategy you may consider would be to request your report from one bureau, and then wait six months before you order from the other bureau. By spacing out your requests, you can demonstrate a consistent score over a period of time.

5. Can I fix or change incorrect information on my credit report?

If you find inaccuracies in your credit report, such as someone else’s personal information on your file, debts listed that aren’t yours or that have been paid in full, or incorrect payment history, you have the right to have it investigated by following these steps:

• Contact the credit reporting agency for their dispute resolution process
• If the agency’s investigation does not resolve the issue, you can request that your explanation of the discrepancy be added to the report
• You can also escalate the complaint to your provincial/territorial regulator responsible for consumer affairs, or the Federal Privacy Commissioner (except in Quebec, B.C., and Alberta where you should contact the Provincial Privacy Commissioner) if you think your personal information is being mishandled
• If a federally regulated financial institution provided the incorrect information, you should get in touch with the Financial Consumer Agency of Canada (FCAC) to get the errors corrected

Credit reporting agencies don’t share information, so one agency’s report might be more accurate than the other. Be sure to request your report from both Equifax and TransUnion to ensure that both agencies have your correct personal and financial information.

It’s a good idea to request your credit report from Equifax and TransUnion at least once per year to make sure the information is accurate. Doing so will ensure that you catch errors early and confirm that you haven’t been the victim of identity fraud.

As always, I’m available to answer any of your questions about credit scores or debt management in general.

Robert Charles, B.A., CIRP, Licensed Insolvency Trustee, is the founder of Charles Advisory Services.

For every debt problem, there’s a debt solution. Since 2006, Licensed Insolvency Trustee Robert Charles and his team at Charles Advisory Services have helped individuals, families, and businesses in Toronto move beyond debt towards financial health. Contact us today for a free consultation.

TIP: In Canada, only request your credit reports and credit scores from Equifax or TransUnion. There are many scammers out there who claim to be able to provide this information, but are really only after your personal information for their own use, sometimes for fraudulent reasons. Always be wary of whom you provide information to online.