Your credit report includes all kinds of information about how you manage credit. These will be very useful to lenders, but also to insurers, employers and even owners.
In Canada, Equifax and TransUnion are the two major credit agencies that collect your financial information and build your credit report.
They receive this information directly from lenders and creditors who communicate to them how you manage credit and your debts.
An algorithm then generates the famous score, a number between 300 (the worst) and 900 (the best).
R-9, R-8, R-7…
When providing your information to credit reporting agencies, lenders use a combination of numbers and letters. This is called the credit rating. The letter represents the type of debt and the number the rate at which you repay your debts.
For example, the letter R is revolving credit, like a credit card, the M a mortgage loan, the I installment loan (car loan), etc.
The numbers range from 0 to 9: 1 means that we paid on time, 2 that the account was paid late within 31 to 59 days, etc.
R-9 is the worst and indicates that one has gone bankrupt, that debts are in collection or that one has moved without leaving an address.
Be careful, warns Pierre Fortin, licensed insolvency trustee and president of Jean Fortin et Associés, because an R-3 notation for a credit card paid late can quickly turn into R-9 if the creditor decides to send the debt to recovery because he considers that he will not be able to recover his due.
Lesser known impacts
Having bad credit has an impact on different aspects of daily life.
For example, it will be difficult, if not impossible, to obtain credit, or if one succeeds in doing so, it will be at less advantageous rates.
“Some employers also ask to check the credit file, especially for jobs where it is necessary to handle money, such as in financial institutions,” adds Pierre Fortin.
The same goes for insurers.
“You won’t necessarily be penalized, but the insurer might not grant you a discount that it would have offered to another client who has a good record,” says Pierre Fortin.
For what ? Because if you encounter financial difficulties, you are likely to take less care of your property, and therefore the risk of claims is greater. For example, a poorly maintained roof can lead to leaks and water damage.
Finally, with a bad credit report, a landlord will not be inclined to rent his apartment to you. If so, but you’ve since taken control of your finances, put your cards on the table and be transparent with the owner. Explaining the situation to him will make him more likely to trust you.
Advice
- All ratings, good or bad, will remain on your credit file for a maximum period of six years. A consumer proposal will appear there for three years from the time it is completed and a bankruptcy, six or seven years depending on the credit reporting agency.
- Not everyone has free access to your credit file, only a few organizations or people can (financial institutions, lenders, insurers, employers, government institutions, landlords, etc.), for very specific reasons. (granting a loan, renting an apartment, providing employment, insuring property, collecting debts, etc.), but only with your written authorization.
- Since a bad credit rating will stay with you for a long time, it’s in your best interest to correct any errors as soon as possible. Take out your credit file to see what it contains, and if necessary ask for corrections as soon as possible.
