I don’t usually write educational / how to type posts, but in honour of Credit Education Week (CEW), I’ve decided to do just that today. CEW is part of a national effort to raise financial literacy awareness and the importance of proper credit education. As always, I can only speak about my experiences, but I love to share what I’ve learned with others.
Since I started this blog, I’ve tried to make it an annual tradition to check my credit score and credit report around the end of the year. For those who don’t know, your credit score and credit report are two different things. Your credit score is a 3-digit number (between 300-900) that shows potential creditors how well you’ve used your credit to date, and helps them decide how risky it would be to lend money to you. The higher the score (750+ is ideal) the better you are with credit, which means creditors should see you as a low risk; this also helps you get access to the lowest interest rates.
Your credit report, on the other hand, is a much longer document. In it, you’ll find basic information (name, birthdate, address, employer, etc.), as well as a history of all the different types of credit you’ve ever opened. The credit history in your credit report will list all your accounts (both open and closed), the date you opened each of them, their credit limits, any current/past due balances, as well as a detailed payment history. It’s important to review your credit report to make sure everything is accurate (as it can take a long time to file a discrepancy and actually see it removed from your report). I like to review both, so I can get a clear picture of how future creditors will see me.
In November 2011, I checked my credit score and credit report for the first time, and was surprised to find that Equifax had given me a score of 778. According to them, I had “excellent” credit. But how could that be? At the time, I still had more than $5,000 of credit card debt + two instalment loans. And just five months before that, I’d been 100% maxed out. How was I “excellent” with my credit!? Hmm.
In December 2012, I checked my credit score and credit report again, and was disappointed to see that TransUnion had dropped my score down to 741. According to them, I only had “fair” credit now. Again, how could that be!? By this point, I had $0 of credit card debt + only small balances on the two instalment loans. I’d paid off $11,000 of debt that year. What was “fair” about this score!?
As I learned that year, issuers of credit don’t like when people carry $0 balances on their available credit – especially revolving credit (credit cards). My credit score dropped because I had no credit card debt, I had cancelled one of my two cards and, back then, I was barely using the card I kept because I didn’t trust myself with it yet. In short, I wasn’t really using the credit system, and the system didn’t like that.
Last week, I checked my credit score and credit report, and was (again) disappointed to see that Equifax had only inched my score up to 753. According to them, I have “very good” credit now. Excuse my language but I have to say that this pisses me off. I have no debt, use credit cards regularly and always pay them off. But that means no one is earning any interest from me, so I’m penalized with a lower score. Thanks, guys.
If you’re curious where I stand amongst the rest of Canadians, take a look. (Props to the 57%!)
The other reason I think my score isn’t “excellent” is because I only have one type of credit open right now: two credit cards (one I’ve had since November 2004!). According to the FCAC, “It is better to have a mix of different types of credit, such as a credit card, auto loan, line of credit or other loan.” Well, I don’t need an auto loan or any other type of loan, and I don’t want a line of credit. So, too bad for me, I guess.
Fortunately, none of this really matters right now. As you can see, the credit system is designed to help you get more credit – that’s it. And I won’t need more credit anytime soon, so I don’t need an “excellent” credit score to get me the best interest rate – but I will one day. Whenever I decide to buy a place, I’ll look at different ways I can improve my credit score. It’ll likely involve taking out a small loan or opening a line of credit, and paying someone a bit of interest. I got that advice straight from Gail, and it makes sense based on everything I’ve read about the credit system. But until that day comes, I’m going to keep paying off my cards each month and feel “very good” about my financial situation.
How to Check Your Credit Score and Credit Report in Canada
If you haven’t checked your credit score or credit report before, here’s how to do it:
- First, there are two credit-reporting agencies in Canada: Equifax and TransUnion; I like to swap off, so I check it with Equifax one year, TransUnion the next, and so on. The agencies should both have all the same information about you, but I still think it’s a good idea to swap off just in case one looks different.
- If you just want to look at your credit report, you can do that for free once/year! You should be able to find a form on both the Equifax and TransUnion websites, which you can download, print and mail off. Remember, though, that your credit report does not include your credit score.
- If you want both your credit score and credit report, you’ll have to pay for it* ($22-24). Here are links to the correct Equifax and TransUnion webpages where you can do this. You only need to check once/year, so it’s not a huge cost. But if you don’t want to pay, at least get a copy of your report.
When was the last time you checked your credit score/report? Did you spot any errors?