Analyzing credit reports

Analyzing credit reports

Your credit report contains your credit history as reported to the credit reporting agency by lenders who have extended credit to you, as we have written about in previous blog posts. The information in your credit report is also used to generate credit scores. If you don’t know what a credit report or score is, check our post on this.

This post will attempt to explain the details both in the credit report and score. Most adults have a credit report if they have had some type of loan or credit card. This is the reason why it is important to review your credit periodically. But your credit report contains a lot of information, and it can be confusing to navigate. We will try to help you with this part.

A credit report is just that – a report/history of your credit. It can affect your loan interest rates and ability to open financial accounts. An annual review helps ensure your report is up-to-date and accurate. Also, if you’re a victim of identity theft, your report might contain errors. Overall, reviewing your credit keeps you aware of your financial situation.

If you are applying for a mortgage, what are some things lenders look at? The number of inquiries you have had recently. This is important because a high number of inquiries in a short period of time could indicate that you may be having some financial difficulties.

They will pay close attention to the notation beside each account that indicates your payment history: the letter “R” refers to revolving debt (for instance, monthly payments that can change, such as credit card payments), and the letter “I” refers to instalment debt (fixed monthly payments such as loans). There will also be a number from 1 to 9. 1 represents “paid as agreed” and 9 indicates “bad debt or an account that is placed for collection or bankruptcy). The ideal situation: R1 and I1.

Lenders will also look at your personal information: your name, address, birth date and SIN to see if they match the information you have given them. Any discrepancy could indicate fraud or identity theft.

Finally, they look at your credit score as a fast way to have a glimpse of what your credit history is like.

Again, if you want to know what a credit score is, please check our post on this topic.

It is important to know a few terms. An account in good standing is one that has been paid in full and on time. If the status of your account is “charged-off,” this essentially means the creditor has given up on you, charging the amount off as a loss. Usually, they’ve sent your debt to collections. If you made a payment after a charge-off, it won’t be removed from your account.

Credit inquiries refer to individuals who have pulled and reviewed your credit report. It might include a bank at which you opened an account or a mortgage lender, if you are applying for a home loan. There are two types of inquiries: Hard and Soft.

Hard inquiries are made by lenders when you’ve applied for a loan or line of credit. If too many are made within a certain time frame, this can count against your credit score. Soft inquiries are made when you check out your own credit report or when a marketing agency “pre-approves” you for a line of credit.

Last but not least, if you think your report contains an error, you can file a dispute. Both credit bureaus – Equifax and Trans Union – in Canada will allow you to file disputes online. Write to them and tell them you think there’s an error in your file. The form you are required to fill out to do so is included with your credit report – this form is also available on line.  Be sure to also send along any documents that support your version of why the error is, in fact, an error. The bureau will contact whoever submitted the information in question, and if it is changed you will be sent a new, corrected copy of your credit report. The companies that have requested a copy will also receive an updated version of it.

If you have any other questions about understanding your credit report or score, please do not hesitate to contact the professionals at The Costa Group.