Your credit record acts as your history of financial responsibility. If you want to buy a house, a car, get a credit card or make any other big-ticket purchase, a credit check will probably be done on you. So, take responsibility for your finances and find out what’s in your credit record.
Have you ever wondered what lenders see when they look at your credit file? What can be reported about you? Divorces? Race or ethnicity? Criminal charges? Drinking habits? Political affiliations? What exactly are the limits of a credit report?
Lenders, or companies who are in the business of lending money, are very interested in knowing just how you have repaid loans in the past. Did you always pay on time, or were you well-meaning but always late?
How Credit Ratings Work
A credit record is your financial resume, giving potential lenders up-to-date information that may affect your ability to repay a loan or mortgage. Sometimes credit checks are a part of screening new employees, especially if they will be handling money or valuable goods. A credit check is a snapshot of how you handle financial responsibilities and commitments.
When you apply for credit, lenders have you complete a written consent, or are required to notify you in writing that they will be getting your credit report. The credit agency or bureau’s responsibility is to ensure that the request for a report is legitimate. For instance, your neighbour can’t phone up and find out all about your personal finances. Online Credit Reporting usually operates along similar guidelines, often requiring identification and subscriptions to verify your identity. In fact, before many provinces adopted consumer legislation providing for legal access to consumer’s credit records, you couldn’t even see your own credit file. Can you imagine the problems experienced by people with common names like Joe Brown or Sally Smith? What if there was negative or untrue information on the credit file?
The provincial ministries responsible for consumer protection developed credit information reporting Acts and standards in consultation with industries. These standards and statutes were adopted across Canada in the 1970s and 1980s. You are now legally entitled to view your credit file, and make changes where the information is untrue. You can also provide written explanations of transactions that are under dispute (300 words or so). These explanations and changes will be part of your report when a lender requests a credit report.
So what exactly can credit bureaus report? A credit report will contain information about your loans, credit cards, rental information in some cases, and how you repaid these credit transactions. They can also report any court judgments against you, and report information that is less than six years old. For example, if you completed bankruptcy proceedings eight years ago, and were fully discharged, the bankruptcy would not be reported. A second or third bankruptcy has a longer reporting period.
Your political affiliations, race, religion, and information about criminal charges that did not result in conviction cannot be displayed on a credit report. This also applies to negative information more than six years old (the statute of limitations). If you find incorrect information in your credit file, ask that it be removed and be prepared to demonstrate that the information is wrong.
Divorce, Palimony and Shared Finances
This section could be a book, since there are so many variations about how people end up with debts and credit rating problems when a relationship ends. Love, honour, and co-sign – that is the vow with a financial kick to it. If you are experiencing problems, you should probably sit down with a financial/debt counselor. Work out a plan for loan repayments, and begin the process of rebuilding your credit rating. Don’t leave it to chance. It takes hard work, and a plan to get back on your feet. Is there a credit-counselling agency listed online? Check government program listings in case your province has a debt-counseling program.
The rule of thumb about co-signing is that if you wouldn’t be prepared to repay the loan if the individual you are co-signing for was not able to make the payments, you should reconsider providing the security. Co-signing is a legal commitment to repay the debt should the primary borrower default. Sometimes you might be better off put the loan in your own name, so that the goods being purchased are under your credit report until the loan is repaid.