What is a credit report used for?

You may have heard of it, you know that your financial choices can affect it, but in concrete terms, what is a credit report all about? And where does the credit score fit in? Learn everything you need to know and find out tips on how to keep your credit report in good order.

The first thing to know is that your credit report reflects your financial behaviours based on the information that lenders or creditors provide to the credit bureau. It summarizes your credit history and is kind of like your financial résumé. It also indicates if you're able to meet your financial commitments. It includes:

• The amount of your loans (e.g., credit card, personal loan)
• The repayment of your debts and bill payments (e.g., student loan, phone and electricity bills)
• Repayment habits (e.g., telecommunication accounts like cellphones)

In more concrete terms, your report sets out the information that lenders rely on to get an idea of your financial reputation in order to make decisions. It’s a way for you to show them that they can trust you. However, engaging in certain behaviours could hurt you. Here are a few examples:

• Late payments and payment defaults
• NSF cheques
• Unpaid fines
• Accumulating credit applications (cards, loans, etc.)
• Unpaid debts or credit card balances, including balances on retailers’ credit cards
• Lines of credit, loans, bankruptcies and debts transferred to a collection agency

We asked Annie-Pier Larouche, an advisor at Desjardins’s Université Laval branch, to explain the importance of a good report: “If credit is available, a bad report will make it difficult to borrow large amounts of money, for example, to purchase a car or home.”

She added, "You have more options with a good credit report. That means you might not need a surety or guarantor (co-signer), for example." To highlight the importance of having a good report, here’s who can review it:

• Banks, cooperatives and other financial institutions
• Credit card issuers
• Car rental companies
• Retailers (chains and superstores)
• Cellphone companies
• Insurance companies
• Governments
• Employers
• Apartment building owners

Your credit report is created when you borrow for the first time, often using your first credit card. So, the advice is the same for everyone, young or old: It’s best to use it only if you’re able to repay your expenses at the end of the month to avoid interest, penalties and black marks on your credit history.

If your card balance is always at the limit, the credit bureau views you as a risk. It’s therefore recommended that you use no more than 30% of your credit limit. For example, $600 out of a possible $2,000.

A credit score is a rating that’s calculated and awarded based on a number of factors. It’s a 3-digit score between 300 and 900, which can be compared to a score given to you in school, for example (900 being A+). Your credit information and your score are updated every month.

Factors that may affect your credit score include:

• How long you’ve had credit
• How long each credit has been in your report
• Whether you carry a balance on your credit card
• Being close to, at or above your credit card limit
• Your payment habits (e.g., late payment)
• The number of recent credit applications
• The amount of your outstanding debts
• The type of credit you use

As soon as an institution decides to grant you credit, it refers to a company that has your credit history (report) and score, such as TransUnion and Equifax. According to Equifax, a “good” score is usually between 660 and 724. Between 725 and 759, the score is considered very good and a score above 760 is considered excellent. If your score is below 560, it will be perceived as lower. Although the score is important, it’s one of several pieces of information that will be used to determine your creditworthiness.

If you want to know your credit score, Desjardins offers a credit score tool. You can access it in your AccèsD anytime.

• Be patient, save and limit impulse buying.
• Take the time to shop suppliers before buying (telecommunications, phone, insurance, etc.). In some cases, this research will help you lower your payments and meet your financial commitments.
• Limit how many cards you have and, above all, use them according to your ability to pay and repay.
• Check your credit report alerts (like TransUnion) regularly.

Using your credit wisely can help you keep your personal finances in good order for the future. It will also help you when it's time to make important decisions, like buying your first home.

^{1. Reported by Canadian government offices, courts and legal suppliers and may include bankruptcy and related activity, as well as court judgments. Collections are reported by collection agencies. Public records and collections may have a negative impact on your credit standing. Source: Equifax}