Understanding credit bureaus and the important role they play

Credit bureaus operate with a lot of secrecy that often piques the interest of most people. The two that most Canadian residents have dealt with are Equifax and TransUnion. Even so, most residents do not understand the full extent of their roles and their exact purpose.

About credit bureaus

The definition of such agencies seems straightforward on most dictionaries, but understanding them requires access to more information. They normally operate independently and don’t share information with similar agencies. For that reason, their reports and scores tend to differ slightly. Some financial institutions and lenders may send information to both agencies, while others may only use one.

Their main role is to collect and compile information from credit card companies, banks, and collection agencies. They start this process as soon as you open the first credit account and can sometimes check public records regarding foreclosures, tax liens, bankruptcy, and repossession. They use the information they get to calculate credit scores using FICO standards, which will then determine how easily you get loans or how low the interest rates become.

What are credit scores?

A credit score is a number that ranges between 300 and 900 and is used to determine the creditworthiness of an applicant. The higher the score is, the more trustworthy a person seems, which allows access to several willing lenders. Various factors contribute to the score in different ways.

Payment history: This refers to the way loans and bills are paid. It is how quickly the debt is cleared, whether it gets to the collection agencies, and the missed payments. Note that credit bureaus only collect information and not money. As such, Credit Bureau Collection does not exist.

Credit utilization: Contributes 30% of the score and refers to the amount of credit used. Try to keep the expenditure below 30% on all your credit cards regardless of the limit.

Credit history: Refers to how long the credit account has been in use and contributes 15% of the score. Since it shows spending patterns, the older the history, the better.

Credit types: Having different types of credits at the same time may increase the score. For instance, if you have instalment loans, revolving credit, and a mortgage at the same time and you don’t miss payments, you demonstrate that you can be trusted to handle various products. It covers 10% of the score.

Inquiries made: This factor shows how frequently you apply for credit. When seeking a new loan, the potential lender checks your credit history, which is recorded by the bureaus. Too many inquiries within a short time imply that you have an unstable financial status and may not handle the funds properly if given. Although it only covers 10%, it is still a big factor that you should not take lightly.

Do credit bureaus abide by any laws?

Yes, the agencies have various regulations they must follow in their operations. These rules differ in every province in Canada, but they are all geared towards consumer protection. The rules also apply to how they acquire and disburse the information. Common ones include:

Requestors having a permissible purpose when asking for information, and it is upon the agencies to ensure they are legit. The bureaus can only divulge your details to debt collection agencies or when a credit decision is pending. If the request involves an employment opportunity, domestic residence purchase or rental, or is about insurance, they can also share your credit details.

Requestors are mandated to inform the agencies about the use of the information they get, especially if they intend to use it to take adverse actions such as declining a credit application or denying employment. They should also disclose if they intend to increase lender charges based on what they discover.

Credit bureaus must give a consumer a credit report as soon as possible after an application. Applying for a credit report does not mean that an inquiry into the account should start, and it should not affect the credit score. It should not take too much time either, regardless of the mode of application used.

Bureaus are required to look into any dispute filed by a consumer. If their investigation shows that the error is real, the agency should inform every institution or individual that has received the credit file within a specific period, which varies in every Canadian region.

The agencies must maintain positive credit information for consumers for at least 20 years. It allows consumers to keep track of their history, especially if it is positive. This is done even if the details become negative later.

Getting a credit report from a credit bureau in Canada

Consumers are advised to check their credit histories at least once annually. It allows you to identify discrepancies that, if left unresolved, may cause a lot of negative effects on your credit history and score. Checking the credit report regularly has many benefits, which include identification of fraudulent activities or cases of identity theft. You will find out whether you took the debts indicated on your account. It also shows errors such as debts that have already been paid off but are still showing. All these will show the credit status, especially when you need a loan.

Transunion and Equifax Canada are reachable online or by phone at 1-800-663-9980 and 1-800-465-7166, respectively. Applying to both agencies is allowed and can be done for free through email. You can also pay for immediate access online.

Addressing questions on the credit report

Check all the information on the credit report carefully and understand what it means. If you notice any incorrect data, contact the credit bureaus immediately. If you only need help with credit repair, contact YorkCredit. Our team will assess the report with you and identify the problematic areas before coming up with the right tips to help you improve it. We are also available to help with money management programs.