Your credit report contains all kinds of information about how you manage credit. These will be very useful for lenders, but also for insurers, employers and even property owners.
In Canada, Equifax and TransUnion are the two major credit reporting agencies that collect your financial information and produce your credit report.
You receive this information directly from lenders and creditors who tell them how you manage credit and debt.
An algorithm then generates the famous score, a number between 300 (the worst) and 900 (the best).
R-9, R-8, R-7…
When submitting your information to credit bureaus, lenders use a combination of numbers and letters. This is called the credit score. The letter represents the type of debt and the number represents the rate at which you are paying back your debt.
For example, the letter R stands for a revolving loan like a credit card, M for a mortgage, I for an installment loan (car loan), etc.
The numbers range from 0 to 9: 1 means we paid on time, 2 means the bill was paid 31 to 59 days late, etc.
R-9 is the worst and indicates that one has gone bankrupt, that a debt is being collected, or that one has moved without leaving an address.
Be careful, warns Pierre Fortin, licensed insolvency practitioner and president of Jean Fortin et Associés, because an R-3 notation for a late-paid credit card can quickly become R-9 if the creditor decides to send the claim for collection, because he considers that he cannot collect his claim.
Lesser Known Effects
Bad credit affects various aspects of daily life.
For example, it becomes difficult or impossible to get credit, or if you do, on less favorable terms.
“Some employers also require checking the credit file, especially for jobs that involve handling money, such as in financial institutions,” adds Pierre Fortin.
The same applies to insurers.
“You won’t necessarily be penalized, but the insurer may not give you a discount that they would have given to another customer with a good record,” says Pierre Fortin.
For what ? Because if you get into financial trouble, you’re less likely to care about your property and therefore the risk of claims is greater. For example, a poorly maintained roof can lead to leaks and water damage.
After all, if a landlord has a bad credit report, they won’t be inclined to rent their place 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. If you explain the situation to him, he will be more likely to trust you.
Advice
- All ratings, whether good or bad, will remain on your credit file for a maximum of six years. A consumer proposal appears there three years after completion and an insolvency six or seven years, depending on the credit agency.
- Not everyone has free access to your credit file, only a few organizations or individuals (financial institutions, lenders, insurance companies, employers, government institutions, landlords, etc.) can do so for very specific reasons (credit granting, renting an apartment, providing jobs, insuring property, debt collection of debts, etc.), but only with your written permission.
- Since bad credit will stick in your mind for a long time, it is in your own interest to correct any mistakes as quickly as possible. Take out your credit file to see what’s in it and request corrections as soon as possible, if necessary.
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