Understanding Your Credit Report
When you order a credit report, chances are your mind is on the score that is attached to it. What does that number say about your financial situation? Can it be improved, or is it healthy? What consequences will that have for your personal financial plan?
Despite the importance of the score itself, credit reports contain large amounts of other information that is equally important to any financial self-assessment. It can also be of value to understand the details of the report in order to find potential errors or misrepresentations that can be corrected to improve your score.
Decoding Your Credit Report: A Step-By-Step Guide
First of all, here are links to two sample credit reports: one by Equifax and one by TransUnion (the two primary issuers of such reports in Canada.) They lay out slightly different categories and visualizations of the information that is most relevant to the reader, but are largely similar in terms of what they can tell you about your credit situation.
This is information such as your name, current and previous address(es), social insurance number, telephone number, date of birth, and your current and previous employers. Ensure that this information is up-to-date and matches the information on your government-issued identification so as to avoid any confusion for third parties needing to do a search on your credit information.
Credit report inquiries
This is a list of all of the people who have inquired about your credit: yourself, a lender, or any other authorized organization. These will generally be institutions such as banks, automotive lessors, home lessors, etc. but can include other organizations that request a financial profile of you as an individual. An unusual increase in the number of inquiries can have a negative effect on your credit score.
Scoring of History Items
Some credit-reporting agencies report the lenders’ rating of each of your credit history items on a scale of 1 to 9.
The most common ratings are “R” ratings. These are known as North American Standard Account Ratings and are the most frequently used. The “R” indicates that the item being described involves revolving credit. Ratings marked “I” indicate instalment loans. “O” denotes open credit, such as a line of credit. where you borrow money as needed up to a certain limit, where the balance is due at the end of each period. Student loans can also fall into this category.
R00 – Too new to rate; approved but not used;
R1 – Pays (or paid) within 30 days of payment due date or not over one payment past due
R2 – Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
R3 – Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due
R4 – Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
R5 – Account is at least 120 days overdue, but is not yet rated “9”
R6 – This rating does not exist.
R7 – Making regular payments through a special arrangement to settle your debts (i.e., credit counseling)
R8 – Repossession (voluntary or involuntary return of merchandise)
R9 – Bad debt; placed for collection; moved without giving a new address or bankruptcy.
Items that are listed here show events such as a bankruptcy or a credit-related court judgment against you in a lawsuit. Secured loans, which are backed by an asset (your property for example), may also appear in your credit report. Bankruptcies will show their status as having been discharged if the appropriate amount of time has passed.
This is any statement you may have made to explain a particular situation, such as a dispute with a financial institution or a fraud warning.
With these categories clearly defined, your credit report should give an easily understandable picture of your recent financial history. Any discrepancies should be relatively easy to discover and point out. Don’t just focus on the score number itself: build a credit report that looks stable and conflict-free across the various parameters that can be examined by a potential creditor.