In an effort to try to make things simpler for our Canadian friends, where information pertained specifically to Canada, I’ve tried to categorize it as such and in some cases, split the information out into it’s own article. 

The information which follows is one LONG listing of topics on this site as they pertain to Canada.  I did manage to at least group them in order, though!  Yay, me!

If you don’t like the way it’s set up or it’s too unwieldy to use this way, let me know I certainly don’t want to make things more difficult or more confusing than they already can be

--arin

Would you like to own a home some day?  Buy a car?  Rent an apartment?  Have you had difficulties obtaining these things, or others, due to bad credit?  Well, there is hope!  You can repair your credit… yourself!

Between Us

When I was faced with the task of repairing my own credit, I was astonished at the lack of free information available on the subject: Where do I start?  What do I do?  In addition, how do I do it? Everywhere I turned, there were offers to either repair my credit or help me repair it...for a fee. If I had enough money to pay someone to fix my credit problems, I wouldn’t have had any credit problems to begin with!

Over a period of time and after much searching, I gathered the information that I’ve placed here.  My intent is to save you the time and the effort, which is better spent on your campaign to establish good credit.

There is usually nothing that someone else can do to repair your credit that you cannot do for yourself.  (Those “credit repair” places sometimes neglect to tell you that.) Had I known how easy it really is, I could have had my credit cleared long before I did.

“Bad Credit?  NO Problem!” offers are available everywhere, but unless you take steps to keep your credit rating on the right path, you run the risk of costing yourself money… the very thing you can least afford!  High interest rates (like with those “Bad Credit?  NO Problem!” offers) cost YOU.

Suppose you wanted to buy a $20,000.00 car and pay it out over 48 months.  With good credit, they may be offering a 6.5% interest rate (sometimes much less!), meaning you’d pay approximately $2700.00 in interest over the life of the loan.  *However*, with bad credit, they may offer you an 11% interest rate (sometimes MUCH higher!), meaning you’d pay approximately $4800.00 in interest over the life of the loan!  That’s a big difference!

For those with bad credit ratings: DO NOT FEEL ALONE: In 2005, approximately 2 million households filed for bankruptcy, so a lot of us have been in your shoes.  There are many reasons why you may find yourself in this situation – divorce, medical bills, lost job, the “ignorance of youth”, etc. 

Your first reaction may be to stick your head in the sand and ignore your credit situation.  DON’T DO IT!  I know how discouraged you can feel, but it’s important to do whatever you can NOW to get back on the path of good credit.  Depending upon the severity of your credit problems, it may take weeks, months, or, sadly, years to successfully repair them; however, it CAN be done.  And more importantly, you can do it YOURSELF.

Know where you stand!

Take steps immediately to ensure that your credit rating allows you to do the things you would like to do.  You may not be able to afford a new home or car now, but what about later?  You never know what the future may hold and, without good credit, you may be limiting yourself and your dreams.

You may have good credit and not be aware of it.  Creditors can use this against you by charging higher interest rates.  What you don’t know CAN hurt you. ALWAYS stay on top of your credit situation.  Know what your credit report says and make sure that what it shows is accurate.

So where do you start?

Good news! You already have.  Within this site, I’ll explain the “mysterious” Credit Process, show you how to obtain your credit reports and credit scores, what to look for once you receive them, how to dispute inaccurate information, and how to improve your credit rating.  Although the process can be a slow one, it’s simple, it’s easy and it’s one you can do for yourself!

For those who may be unfamiliar with the credit process, here’s a quick summary: You apply for a credit account to purchase goods or services.  Based on various factors, the Creditor agrees to open a credit account for you and begins reporting your information to the Credit Reporting Agencies.  In turn, the Credit Reporting Agencies update, store, and share your information with other potential Creditors or potential employers.  There are laws governing all of you in order to protect each of you.  To break it down further…

Give Me Credit!

Companies (or, “Creditors") lend you money to purchase goods or services by opening a “credit account” in your name, which you promise to pay back according to the Creditor’s rules. 

Creditors use several different factors to determine your credit worthiness (the likelihood that you’ll pay as agreed during the next 2 to 3 years), how much credit to lend you and at what finance rate to lend it. 

Though each Creditor will have it’s own guidelines on granting credit, the most common factors taken into consideration are:

• Your job history,
• Your banking information,
• Your mortgage information,
• Your Credit Report,
• Your Credit Score,
• Previous credit accounts with the Creditor, and
• Special reasons for past credit problems (sometimes).

The Grapevine

Creditors may supply information about you to any or all “Credit Bureaus” (or, “Credit Reporting Agencies”) on a monthly basis.  As your Credit Score and Credit Report are the two most important factors a Creditor may use in granting you credit, you should obtain them from EACH Credit Reporting Agency at least once a year to check for omissions, inaccuracies and for possible identity theft.

If you are married, both you and your spouse should each request copies from all of the Credit Reporting Agencies, as the information contained in the reports may be different for you and your spouse.

Share and Share-alike

The Credit Reporting Agencies generally maintain the following information about you:

• Identifying information: your name, your current and previous addresses, social security number, telephone number, date of birth, current and previous employers
• Credit history: debt payments made to Creditors
• Public records: judgments, bankruptcies, foreclosures, tax liens, etc
• Inquiries: a list of Creditors and other parties authorized by you and/or by law, which have received your credit report
• Other information: banking information and/or collections

Think of the Credit Reporting Agencies as huge libraries filled with data about you.  They do not verify the information.  They only receive, update, and share their records on you.  It is YOUR responsibility to verify the accuracy of the information, which they hold.  It is the Creditors, NOT the Credit Reporting Agencies, which use this information to determine your credit worthiness.

As a consumer, you do have rights, which protect this information.

Your Rights

In the US, your rights are protected by:

• the Fair Credit Reporting Act (FCRA) and
• the Consumer Credit Protection Act (CCRA).

There may also be additional rights granted to you at the state level.  When there are contradictions between the FCRA and State law, the law which offers the best consumer protection will take precedence.  To find out more information about your state’s Consumer Protection Offices, check here. These acts are meant to protect YOU, the consumer, and establish rules for Creditors and Credit Reporting Agencies. 

In Canada, at the federal level, the Personal Information Protection and Electronic Documents Act (PIPEDA) outlines requirements for organizations who maintain personal information during the course of business.  In addition, individual provinces may have their own credit report legislation.  There is a list of provincial links available here.

Certain consumer rights are consistent between the US and Canada.  Among them:

• Access to your credit report is limited


• You have the right to know if information has been used against you


• You have the right to know what’s in your file


• You have the right to dispute incomplete or inaccurate information


• Inaccurate information must be deleted or corrected

Obtaining Your Credit Information

Once a year, you should check your Credit Report for accuracy and to guard against Identity Theft.  Since Creditors may report to one or more Credit Reporting Agencies, it is suggested that you request a report from each.  Married couples should each request a separate report from all three agencies, as the information may be different for each spouse.

You can also obtain a copy of the Credit Reporting Agency’s Credit Score for you.  These are not a part of your Credit Report, so must be requested separately (or, in addition to).

In Canada…

In Canada, you may request a copy of your credit report by mail (FREE) or online (FEE) from the major Credit Reporting Agencies.  In addition, you may request your Credit Scores, though there is a fee.

• Equifax Canada, Inc.
  Consumer Relations Department
  Box 190 Jean Talon Station
  Montreal, Quebec
  H1S 2Z2
  1.800.465.7166


• TransUnion Canada
  TransUnion
  Consumer Relations Centre
  P.O. Box 338, LCD 1
  Hamilton, ON
  L8L 7W2
  1.800.663.9980

  For Quebec Residents:
  TransUnion (Echo Group)
  1 Place Laval
  Suite 370
  Laval, PQ
  H7N 1A1
  1.877.713.3393

• Northern Credit Bureaus, Inc
  P.O. Box 727
  Rouyn - Noranda QC
  J9X-5C6

(Please double-check each agency’s website for information required, fees required, and addresses if you are going to request by mail.)

Opting Out of Marketing Lists

For Canadians, the only information that I’ve been able to find on “opting out” is to contact the Canadian Marketing Association.  See their site for more details.  Also, you may want to check the Office of the Privacy Commissioner of Canada site.  If you are aware of other options available, please let me know!

Whether you are in Canada or the United States, when the Credit Reporting Agencies send your credit report, they will furnish you with information on how to read it, since each is slightly different.

You will want to read through the entire report (and its instructions) very carefully. It will contain four basic types of information: personal information, account records, credit inquiries, and public record information. I suggest using a highlighter as you read through your report, highlighting any information that you think needs to be corrected.

Following these guidelines below will help you as you read through your credit report:

PERSONAL INFORMATION

Verify all the “personal information”, such as your name, your date of birth, your address, your social security number (social insurance number in Canada), your employer’s name, your spouse’s name, etc. If the information is not correct, you’ll need to have it updated. Creditors want to see that you are stable; therefore, the longer you have worked in the same place and the longer you have lived at your present address the better. Also, if they have the wrong personal information, this CAN cause you problems later. (If you have been the victim of identity theft, your personal information may be incorrect! If it is incorrect, pay close attention to the next step!)

Quick Tips

To verify that you have not been a victim of Identity Theft - as you read through your Credit Report, pay close attention to:

- Personal Information
- Account Records
- Public Record Information
- Outdated Items
- Negative Items
- Credit Inquiries

ACCOUNT RECORDS and PUBLIC RECORD INFORMATION

Verify the “account records” and “public information” records. Do all of the accounts belong to you? If you have a name like John Smith, don’t be surprised to find Creditors of some OTHER John Smith showing up on your report. If you find items that do not belong to you, try contacting the Creditor directly. If the Creditor doesn’t remove the item, contact the Credit Reporting Agencies and explain that the account is not yours.

In cases of identity theft, where the person has used your information to obtain credit, there may be accounts listed that you know nothing about. In the US, if you believe you are the victim of identity theft, visit the FTC’s “National Resource on Identity Theft”.  In Canada, go to the Privacy Commissioner’s Fact Sheet on Identity Theft.

Verify that the balances and the credit limits showing on each account are accurate and that any accounts you have previously closed are actually showing as closed. Potential creditors will look at the percentage of your outstanding account balances against your available credit limits and at the percentage of your available credit limits against your income. In both cases, lower percentages will look best. Your available credit limits should not exceed 25% of your income.

For example: You make $30,000 per year, your total available credit limits are $25,000, and your outstanding account balances are only $1,000. While the percentage of your account balances is low compared to your available credit limits, if you actually used all of your available credit, you would be unable to pay all of your bills; therefore, a potential Creditor may hesitate to lend you money.

Verify the “Date of Last Activity” showing for each account. (The “Date of Last Activity” is usually defined as being a date 30 days after the last payment missed was due.) Outdated items are usually the easiest to get removed.

At times, Creditors may use questionable procedures, which keep a negative item on a credit report. They may change the “Date of Last Activity” or write off the bad debt and then sell it to a collection agency, which then reports the account to the Credit Reporting Agency and extends the time an account is reported. By disputing items you believe to be outdated, you may be able to get these items removed.  See Length of Reporting (For US Residents) or Length of Reporting (For Canadian Residents).

Negative items that are outdated, inaccurate, unable to be verified, or that don’t belong to you MUST BE REMOVED.

NEGATIVE ITEMS

Between Us

My husband had a judgment on his report of which he was completely unaware. When I contacted the Courthouse, I was informed that they placed the judgments by name, not by SSN.

If you have a name that is very common, this could happen to you. (In our case, the Courthouse removed the item shortly after my phone call.)

Look for negative items, such as late payments, collection accounts, charge-offs, bankruptcies, foreclosures, judgments, and delinquent child support. Obviously, these items count against you with a potential Creditor.

Late payments: Check the payment history for each account and verify that this information is correct. If the information is not correct, prove that you were never late by providing canceled checks or payment receipts. The fewer late payments you have, the better your credit rating will be, of course. If the information is correct, but is now outdated, ask the Credit Reporting Agency to remove the late payment information.

Collection accounts: If a Creditor has turned your account over to a Collection Agency, the account should only be listed under the Collection Agency on your report. If the account is listed with both the original Creditor and the Collection Agency, have this corrected. Also, the Collection Agency listing will not always show the original Creditor. Contact the agency to determine the original Creditor. If the collection account is outdated, have this item removed.

Bankruptcies: In the US, if you’ve had a bankruptcy dismissed or discharged over 10 years ago (6 to 7 years ago in Canada), it should not appear on your credit report. If your bankruptcy is more recent, verify that the filing date and the dates of dismissal or discharge are correct.

Judgments: Verify that the judgment actually belongs to you. If you were unaware of it, contact the Courthouse. If the judgment does belong to you and it’s now outdated, have the item removed.

CREDIT INQUIRIES

There are two types of “credit inquiries”: (1) where you have applied for credit (hard inquiries) and (2) where businesses with a “permissable purpose” have requested your report.  Credit scores are not affected by inquiries not initiated by you (promotional credit offers), inquiries by your employer, or your own requests to view your credit report.

In the US, inquiries initiated by you will remain on your credit report for 2 years.  In Canada, the general rule seems to be that inquiries are purged automatically 3 years from the date of the inquiry, though a minimum of 5 inquiries are kept.

So how do these inquiries affect you? 

If you have a history of declined applications (hard inquiries), it makes you look like a credit risk.

If you have a history of multiple approved applications (hard inquiries), Creditors will look at your ability to repay these loans by comparing your outstanding lines of credit to your income.  The more debt you take on, the more your capacity to repay a loan is diminished.  Of course, if you’ve been shopping for an auto loan, you are apt to have multiple inquiries.  This will not adversely affect your credit score as long as the applications are all done within a few weeks of one another. 

Canadians, your laws are a bit tricky, as you seem to have no federal guidelines, but leave it up to the individual provinces instead. The following chart comes from the Financial Consumer Agency of Canada and shows the reporting periods followed by TransUnion and Equifax by province.

Please make note of the fact that each Credit Reporting Agency seems to have somewhat different guidelines and defintions on reporting periods.

OMG. PANIC ATTACK FORTHCOMING!!

So continue on to Step Three: Disputing Entries on Your Credit Report and remember, you are not alone. I'm with you every step of the way!

You’ve ordered and received your credit report, verified the information on it and identified items to be disputed…

I suggest that you dispute all NEGATIVE items.  (Don’t dispute an outdated POSITIVE item. I did that once. It was removed and I felt like an idiot later.)

There are several methods you can use: (1) dispute items with the Credit Reporting Agencies, (2) dispute items with the Creditors, (3) negotiate with your Creditors, (4) file segregation (do NOT use.  illegal.), and (5) a statement to be included with your credit report. 

Choose the method that best fits your situation.

Between Us

In repairing my credit (ruined due to a divorce) I disputed all 27 negative items on my credit report with the first letter.  Once I received responses from the Credit Bureaus, I narrowed down the remainder of the list to those I felt I could honestly continue to dispute.

Several items had been removed with my first letter, because the Creditors had either gone out of business or they could not verify the accuracy of the information.

Most Creditors will purge payment histories after a period of time, so the longer your account has been closed or charged-off, the greater the likelihood that your information will not be verifiable.

1: Disputing Items With the Credit Bureaus

When you write to the Credit Reporting Agencies, include the following information: your credit report file number, social security number, date of birth, current address, company name of the disputed item, account number of the disputed item, reason for your dispute and any corrections to your personal information.  In most cases, you can dispute your credit report online, by mail, or by phone (not suggested).  I have included sample letters to be used when disputing credit report entries; however some Credit Reporting Agencies may also include a form with your credit report.  You can use either method.  I found that using my own letters was easiest, so that I didn’t have to write everything out more than once.

Keep a file for each Credit Reporting Agency and an accurate record of all correspondence with them.  Track the dates you send letters and the dates you receive responses.  If you speak to someone over the phone, record the time and date and the person’s name, along with any information covered during the phone call.

Once the Credit Reporting Agencies have received your dispute, they will flag the disputed items. The flag will usually stay on your file for 60 days after the investigation is completed. You will be notified of the results of the investigation and be sent a copy of your updated credit report. If you again dispute the item without waiting the 60 days for the flag to be removed, the Credit Reporting Agency MAY reject your dispute and mark it as frivolous.

If you do not agree with the results of the Credit Reporting Agency’s initial investigation, wait 60 days and send a follow up letter. You’ll also want to send a follow-up letter if you have not received a response from the Credit Reporting Agency.

When dealing with the Credit Reporting Agencies, do not allow a refusal to remove or correct an item that you know is inaccurate to intimidate you. As a consumer, you have rights under the Fair Credit Reporting Act (FCRA) and the Personal Information Protection and Electronic Documents Act (PIPEDA) in Canada.

Be persistent. Note, however, the Credit Reporting Agencies will NOT investigate items that they feel are frivolous, so don’t overburden them with disputes.  (Meaning: Don’t send 20 copies of the same disputes to the same Credit Reporting Agencies. It won’t do any good and it may make them angry.)

2: Disputing Items With Creditors

In some cases, your best bet may not be to contact the Credit Bureau first:

Late payments: If you can prove, with canceled checks or payment receipts, that you were never late on the account, send the Creditor a certified letter with copies (NOT originals) of your proof and ask that they review your payment history and send you a copy. Hopefully, this will suffice and they’ll correct your credit report. If they don’t, send a letter to the Credit Reporting Agency disputing the late payment and provide copies of the letter you sent to the Creditor, the payment history (if they sent it to you) and the proof of your payments. If the Credit Reporting Agency can verify that you weren’t late, they’ll remove the negative item from your report.

Bankruptcies: If your bankruptcy information is inaccurate, mail a certified letter to your Bankruptcy Trustee requesting that the information be corrected on your credit report.

Collection accounts: If you have multiple items on your report for an account in collections (for example, both the original Creditor and the collection agency), mail a certified letter to the original Creditor and ask that their item be removed since the account was placed with a collection agency. If they don’t respond, send a letter to the Credit Reporting Agency.

If you’ve disputed a negative item with the Credit Reporting Agencies which was NOT accurate, but they’ve not changed or removed it (similar to the “Late Payments” section above), go directly to the Creditor and ask for the information being used to support the negative item on your credit report. If they don’t respond within a reasonable amount of time, send a letter demanding that the negative rating be removed.

When you contact the Creditor, identify yourself and the account in question. Hold them responsible for the incorrect rating. Inform them that you will contact an attorney if the matter is not resolved. Send the letter to either the Credit Manager, the President of the Company, or both, or anyone you feel would be able to correct the item.

See the Sample Letter Index!

3. Negotiating with your Creditors

Quick Tips

Examples of Good Ratings:
Paid Satisfactory/Paid as Agreed
Current Account (with no late payments)
Credit Line Closed at Consumer’s request


Examples of Neutral Ratings:
Paid in Full
Paid
Settled as non-rated account


Examples of Negative Ratings:
Paid Collections
Paid Charge-Off
Paid was 30, 60, 90, 120, or 150 days late

What if negative items on your credit report ARE accurate? Sometimes you can negotiate with your Creditor to get the negative rating removed.

There are two methods you can use: consulting with a professional such as Consumer Credit Counseling Services, or negotiating on your own. (Consumer Credit Counseling Services is free. You can visit them at www.cccsintl.org, or call 1-800-873-2227.) There is some debate over which method is the best way to negotiate accurate negative items appearing on your credit report. When using Consumer Credit Counseling Services, your accounts may be listed with a rating of “in consumer credit counseling”. Since your goal is to improve your credit, this may not be the best route to take, since Creditors may consider this a negative rating. HOWEVER, some people need the structure that CCCS can give, so decide which is best for you.

If you decide to negotiate on your own, the best time to do so is when your account is in the last stages of collection. By this time, the Creditor has generally given up any hopes of ever collecting the full amount and may be more willing to negotiate.

When you call the Creditor to begin negotiating, remember that you got yourself into this predicament (for whatever reasons). Be honest and polite with the Creditors. Let them know you are trying to re-establish your credit and return to the “good credit” path. Offer some type of repayment plan to the Creditor, preferably a lump sum, not a monthly installment, as a complete settlement of your debt. Realistically, you should expect to pay anywhere from 60% or more in order to clear the debt and its negative rating. The smaller your balance is, the more you can expect to pay.

As with any negotiation, start with a lower amount than what you want to repay (unless your balance was small to begin with); however, don’t start too low or the Creditor won’t take you seriously. Also, make sure you are negotiating with someone who has the power to agree to a settlement. Ask them. They need to understand up front that your only motivation in working out an agreement is to re-establish your credit. Settle for nothing less than a neutral rating or non-rated account.

Once you have reached a verbal agreement, send a written copy of the settlement agreement to the Creditor. Request that they sign it and return a copy to you. Upon your receipt of the signed agreement, send your check to the Creditor. Write “Paid in Full” on your check. After 30 days, order your credit report. If the item has not been changed or removed per the agreement, send a follow-up letter to remind the Creditor of the agreement. The Creditor can be sued for breach of contract if they do not abide by the agreement.

See the Sample Letter Index for a sample ”Settlement Agreement”!

4. File Segregation

File Segregation is a method touted by some “Credit Counselors” as a way to improve your credit. Do NOT attempt this method. It IS illegal. Be wary of anyone who attempts to sell you this type of information. You want to improve your credit rating, not go to jail.

Typically, these “Credit Counselors” will tell you to apply for an EIN - Employer Identification Number - and to use this in place of your Social Security Number on any credit applications.  It is a crime to misrepresent information on your credit applications and you can face stiff penalties for doing so.

For further information on File Segregation and your rights, if you’ve been approached by one of these “Credit Counselors”, please see the Federal Trade Commission’s publication: ‘File Segregation’: New ID Is a Bad IDea.

5. A Consumer Statement

You may write up to a 100-word statement, explaining the reasons for a negative item. This can be useful when the amount of debt is small or when your credit report has only one negative item and several that are positive. Your statement should be concise and to the point.

A sample ”Consumer Statement” has been provided in the Sample Letter Index!

Okay, you’ve begun to get your credit reports cleaned up, so you can now begin re-establishing your credit. You need “positive” ratings on your report! There are several ways to accomplish this...

1. Open a checking and savings account. You’ll need to have these when applying for credit.

2. Apply for a “secured” credit card. With a secured credit card, you deposit money with the credit card issuer to be held as a guarantee.

For example: You deposit $300.00. The credit card issuer will open a “savings” account with your $300.00 and in turn, give you a credit card with a $300.00 limit. You’ll make payments, etc., just as with a regular credit card; however, in the event that you do NOT make your payments, the credit card issuer will use your $300.00 to pay off your balance.

Note: Always make sure before applying for a “secured” credit card that the credit card issuer will report to all three credit card bureaus. If they don’t report to the bureaus, you’ve not done yourself any favors.

Also, some “secured” credit card companies will allow you to convert your account from “secured” to “unsecured” after a period of time (generally, 1-3 years). This means that they will refund the amount you secured the card with and often with interest, too!

3. Lenders seem to prefer a ratio of less than 25% owing versus your available credit, so try having your limit raised...IF you have made your payments on time and have a good payment history with the Creditor. (Be careful: you do not want the percentage of your available credit to your income to be too high.)

4. Close unused credit accounts. You don’t want potential Creditors to think your available amounts of credit exceed your ability to pay them. If you’re not using the account, close it.

5. Apply for department store credit cards. Don’t attempt this, of course, until you’ve managed to remove most of the negative items on your credit report. Once you receive a new department store card, go out and charge on it, but MAKE YOUR PAYMENTS ON TIME (*ahem*). Do not charge to the maximum limit available. I charged about one third of my limit, paid that amount within a three-month period, then charged again and repeated the process. You need to be able to afford the amount you’re charging, though!

In the end, re-establishing your credit rating boils down to patience. Lots of it. Send your letters, wait for responses, and send more letters if necessary. (If things get removed after the first letters...it feels WONDERFUL.) It takes time to improve your credit rating, but in the long run, you’ll be better off for it.

I wish you the best of luck and hope that my site has proved to be a valuable tool in your effort to improve your credit rating!

If you have further questions on credit repair, please read through the FAQ section of our forums!  Also, you may want to move on to ”Credit Scores”, as these are what determines your “credit-worthiness”.

--arin

A credit score is a rating used by lenders to: determine your credit worthiness (the likelihood that you’ll fail to pay as agreed during the next 2 to 3 years), how much credit to lend and at what rate to lend it. Typically, credit scores range from 300 to 850.  The higher the score, the less risk you represent.

History of credit scores

Credit scoring systems became prevalent in the 1960s and involved solely using human judgment to determine the granting of credit.  Due to the slowness of this process and the subjective nature of manually reviewing every credit report, lenders began to standardize the methods used in determining how they made credit decisions.

During the 1980s, Fair, Isaac, and Company developed a statistical model (the FICO® score) allowing a more accurate prediction of the risk a lender faces in granting credit.  This model evaluates the information from your credit report and then compares that information to patterns found in hundreds of thousands of other consumers.  Being more objective and more efficient, this method is now widely used.

Types of Credit Scores

While the most commonly used credit score method is the FICO® method (used by over 70% of creditors), there are many different methods used; therefore, your credit score may vary from lender to lender.

How are credit scoring models developed?

Lenders create their models using several criteria:

• Selecting a large sampling of customers
• Analyzing the data in their credit reports to determine which factors relate to creditworthiness
• Assigning a degree of importance to each factor, based on how accurate a predictor it is in determining who will repay their debt on time

Your credit score is only one factor that a lender will use in making these decisions.  Lenders may try to get a “bigger picture” by looking at your credit report, the information that you provided on your credit application, and even possibly their current relationship with you.  Each lender will have its own guidelines on granting credit, so it never hurts to ask about their policies!

Because credit scores fluctuate as the items in your credit report change, they are generated only when a lender requests your credit report and are not stored as part of your credit history.  (For example, payments or new accounts could cause your score to change.) Your score from two months ago will not be the same score that you would receive today, in most cases.

You may not have a credit score if any of the following conditions exists:

• Your credit report does not contain at least one account
• A remark on your account references a person who is deceased
• Your social security number matches a number in the Social Security Administration’s “Death Claim Index”

How scores are calculated

Lenders create models by reviewing a set of consumers, examining their credit profiles and identifying common variables.  Using this information, they build statistical models that assign weights to each variable.  Lenders then combine these weights to create a credit score.

Thousands of credit-scoring models are in use in the credit industry.  Different models will consider different variables for different types of credit.  For example, an auto loan would more closely consider payment statistics related to auto loans.

Generally, positive credit characteristics will make your score higher and help you to qualify for loans and better interest rates.  Negative characteristics will make your score lower and interfere with your ability to get the best loans/rates.

What Affects a Credit Score?

Although many different scoring models exist, most use the following factors, though their importance in each model may vary:

• Payment History: late payments on past and current accounts will lower your score, while payments made on time will boost your score
• Public Records: collection items, bankruptcies, and judgments will lower your score
• Amounts Owed: balances over 50% of your credit limits will lower your score, aim for balances that are less than 30% of your credit limit
• Length of Credit History: the longer the history, the better
• New Accounts: opening multiple new accounts in a short period of time may lower your score
• Inquiries: a large number of hard inquiries (where you have applied for credit) may lower your score
• Accounts In Use: too many open accounts can lower your score, whether the accounts are in use or not
• Types of credit: the types of credit you have (car loans, credit cards, department store cards, etc), a good balance will look best

What is NOT Considered in Your Credit Score?

The following factors are not considered when determining your credit score:

• Your race, color, religion, national origin, sex, and marital status: US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Protection Act
• Your age: may be considered in some scoring models, but not FICO®
• Your salary, occupation, title, employer, date employed, or employment history: lenders may consider this information separately, but it is not a factor in your credit score
• Where you live
• Any interest rate being charged on a particular credit card or other account
• Any items reported as child/family support obligation or rental agreements
• Certain types of inquiries (requests for your credit report or score): requests made by you, an employer, and any request from lenders without your knowledge are not included
• Any information not found in your credit report
• Any information that is not proven to be predictive of future credit performance
• In Canada, mortgage information is not used to calculate your score

How often does a credit score change?

Your credit score will fluctuate as the items in your credit report change.  For this reason, scores are only generated when a lender requests your report and are not stored as part of your credit history.

Will inaccurate information in my credit report affect my credit score?

If the inaccurate information is used as part of a credit score calculation, then your score will be affected.  You should always make sure that the following items reflect accurate information on your report:

• Payment History
• Public Records
• Amounts Owed
• Inquiries

Your credit score is one of the most important factors used by lenders to determine whether to grant you credit, how much credit to grant you, and at what interest rate to grant it.  For this reason, it is important to know that your score truly represents your credit standing.  Generally, the higher your score, the better off you are.

Lenders do take into consideration other factors: your job history, your income, your savings, mortgage information and your actual credit report.  They may even take into consideration any special reasons for past credit problems.  In the end, the final decision on whether or not to grant you credit lies with them.

If you are planning a major purchase, you should check both your credit report and your credit score several months before.  Make sure the information in your credit report is accurate, as this will affect your score.  Credit scores above 650 will usually qualify you for credit.  Below this, you may have trouble receiving credit.

Since your credit score is a reflection of your past credit history, there is no magical way to improve it immediately; however there ARE steps you can take to raise your score.

• Pay your bills on time!
  Late payments, collections, and bankruptcies will have the greatest negative effect on your credit score.  Even if your debt is small, being punctual is very important!  If you DO miss a payment, make sure that you bring it current the following month.  This will keep the item from showing past due on your credit report.  If you fall behind due to illness, unemployment, or family issues: first, contact your creditor and explain the circumstances to them and work out a payment schedule that you can meet; second, you can add a short consumer statement to your credit report.
• Check your credit report!
  Make sure the information reported is accurate.  Requesting your own credit report will not show up as a hard inquiry and, therefore, will not negatively affect your score.  If you have bad credit, immediately begin taking steps to repair your credit.
• Don’t open new accounts that you don’t need!
  Not only will opening multiple new accounts in a short period of time possibly lower your score, but too many accounts may also lower your score.  Remember, you don’t want to overextend yourself!
• Keep your total account balances as low as possible.
  Remember, balances over 50% of your credit limits will lower your score, aim for balances that are less than 30% of your credit limit.  Also, pay OFF debt rather than just moving it around.
• Minimize the number of inquiries on your credit report.
  A large number of hard inquiries (where you have applied for credit) may lower your score, so don’t apply for multiple credit cards over a short period of time.
• Be patient.
  Just as there is no quick fix to repairing your credit, there is no fast way to improve your credit score.  Build a long history of good credit by paying your bills on time and being responsible.  Consider keeping the oldest account on your credit report open.  This will lengthen your credit history.

Remember: One action on your Credit Report may have multiple effects on your Credit Score (your score fluctuates as your report changes).

For example: You decide to close several unused department store credit card accounts.  By lowering the number of department store accounts, you will generally raise your score; however, it also lowers your total number of accounts, which could *lower* your score.

When you receive your Credit Score, pay attention to the factors that went into calculating it.  Identify which elements you might be able to improve.

Canadian Residents may obtain credit scores through the major credit bureaus:

Equifax, CA

Score Power is the only product that offers you access to your FICO credit score. Score Power provides your FICO score, the Equifax Credit Report the score is based on and a full explanation of your score with tips on how to improve it over time.  Your FICO Score plus your Equifax Credit Report for $21.95 CDN.

TransUnion, CA

You can order, in addition to your credit report, online for $7.95.

Identity theft occurs when someone obtains pieces of your personal information, such as your driver’s license number and social security number, and uses them to impersonate you.  They may create credit accounts in your name, obtain employment in your name, or even apply for a mortgage in your name!

Newsworthy

In 2003, the Federal Trade Commission conducted a survey on Identity Theft.  Their survey suggested that nearly 10 million Americans were affected by identity theft during the previous year!  That’s a LOT of people!  (Understatement?  Possibly.)

Many types of identity theft crime exist.  They include:

FINANCIAL: A person uses your name and social security number to commit any of the following: credit card fraud, bank fraud, computer and telecommunications fraud, social program fraud, tax refund fraud, mail fraud, etc.  Businesses, as well as individuals, are at risk for this type of crime.

CRIMINAL:  A person uses your name and information when stopped by law enforcement, causing an arrest warrant to be filed in your name.

ID CLONING:  A person uses your name and information to become a “new person”, living and working as you.

Every transaction that requires you to give out your personal information (name, social security number, bank or credit card numbers, address, phone number, etc) puts you at risk for becoming a victim of Identity Theft fraud.

You CAN minimize your risk, though and for those who have been victims, there is assistance through the FTC and other agencies.

Every day, we conduct transactions that require us to give out our personal information.  We eat at restaurants and pay with a credit card.  We write a check to the grocery store.  We use our cell phones.  We apply for new credit.  We fill out surveys.  Just normal average everyday things…all requiring our personal information to be shared.  Each of these puts you at risk.

Identity thieves will stop at nothing to get your information:

• They steal your wallet, your purse, your mail
• They change your address with the post office in order to divert your mail
• They will go through your trash, looking for information
• They fraudulently obtain copies of your credit report
• They buy information from store employees
• They use information that you’ve shared on the internet

With your personal information, they can:

• Open new bank or credit card accounts, using just your name, social security number and date of birth
• Change your address with your bank or credit card companies in order to divert your mail to them.  Once they’re receiving your statements, they have even MORE information about you and can run up thousands of dollars in charges on your accounts with you being none the wiser.
• Set up utilities (phones, internet, electricity, etc) in your name
• Buy cars by applying for loans in your name
• Obtain mortgages to buy a home
• File for bankruptcy to avoid paying bills they’ve incurred in your name

Scary stuff, isn’t it?  Your information is so easy to obtain.  And there is so much that they can do with that information!  However, there ARE ways to minimize your risk.

Before I go further… Do NOT panic!

Identity theft is indeed scary, because it seems so easily done.  This is NOT cause to panic!  Just be cautious and use some common sense when it comes to your personal information. 

This does not mean that you should completely avoid ever giving out your name or that you can never write another check or pay by credit card again.  DO NOT begin burning all your trash (especially if you live in the city, as cities seem to frown on such things). 

You can actually: introduce yourself to people, eat out at restaurants, buy goods, and use the internet.  This may sound silly, but I know of people who are so totally paranoid when it comes to ID Theft that they’ve thrown common sense out the window.

What you should do: be cautious, be prudent, and use common sense. 

Follow these tips to help protect yourself from Identity Theft:

Between Us

I’ve had callers who have posed as my bank’s representative and asked for my social security number and bank account.  My bank would already have that information.  I asked the person for their name, the number where I could contact them, and then immediately called my bank (using the real phone number) and reported the instance to them.

Personal Information:

Know how your personal information is going to be used, before you give it out. 

On the internet, view a site’s “privacy policy” before sharing your information.  You can view the policy of this site here.

Never give out your personal information by phone, over the internet, or by mail, unless YOU initiated the contact.

If you are requested to use your social security number as identification, ask if there is an alternative.  Your social security number should only be given out when absolutely necessary.

Credit Cards, Banks, and Other Billing Statements:

Between Us

It really annoys me that the credit card companies send checks/cheques with their billing statements.  I know they want me to use them, so they can make money, but it puts us all at risk, if those are stolen.

Always, always, always review your billing and banking statements and dispute any charges that do not belong to you.  I am shocked by the amount of people who do not look at their credit card statements and phone bills to verify that the charges are accurate.  Don’t be those guys!  It only takes a few minutes.

Don’t allow your bank to print your social security numbers on your checks…cheques, if you’re in Canada, as I recently found out :D

When you order new checks/cheques, ask the bank to hold them for you and pick them up yourself, rather than having them mailed to you.

If your bank or credit card issuers send you courtesy checks that you do not use, DESTROY THEM or keep them someplace that you know is safe.

If you have credit card accounts that you do not use, consider closing them.  The fewer the cards you have, the lesser the risk. 

When shopping, take your receipts with you.  Don’t throw them away in a public place.  At least, not without tearing them into small pieces!

Make a list of all your banking and credit card accounts, including the account numbers, their expiration dates, and their customer service phone numbers.  If these items are stolen, you’ll be able to quickly call and inform them.

Passwords:

Password-protect your accounts.  Use SMART passwords, not your mother’s maiden name or your birth date or any other personal information.  Smart passwords usually contain a combination of letters and numbers.  They are difficult for others to guess, yet easy for you to remember.  Do not write them down!  And never, NEVER, give out your password.

Between Us

Several years ago, my wallet was stolen out of my car (I wasn’t following my own tips!).  Within one hour, I had informed all of my credit card companies and my bank of the theft.  My bank was able to put a stop (for FREE) on the exact series of check numbers that had been stolen, so I wasn’t even forced to change my bank account.  In all cases, the credit card issuers and the banks were extremely helpful and knowledgeable concerning stolen cards/checks.  Which tells me that they handle this all too often. 

Personal Possessions:

KNOW what you have in your wallet or purse.  Don’t carry so many credit cards that you forget what you’re carrying.  And DON’T carry your social security card.  Keep it in a safe place at home. 

Don’t leave your wallet or purse unattended!  Even if you are at work or at church or in a restaurant, it’s just not safe!  And never leave them in open view in your car, even if the doors are locked.

Before you throw documents away:

Be mindful of what you are discarding.  Pay stubs, bank statements, receipts, old billing statements, old copies of your credit report (!), pre-approved credit card offers…all of these are potential sources of information for ID thieves.  Shred these types of items before putting them in the trash.

Mail:

Pick up your mail on a timely basis.  Don’t let it sit in the mailbox where it can be stolen.  Also, if you’re going to be out of town for an extended period, call the Post Office and ask them to hold your mail for you.

Credit Reports:

Check your credit report at least once a year.  You are now entitled to one free annual credit report in the US.  Make use of it.  Make sure that the information in your report is accurate and does not contain fraudulent activity.  See Step One: Obtaining Your Credit Report.

If you are going on active duty, you can ask for an “Active Duty Alert” to be placed on your credit reports.  The alert remains on your file for 12 months and will keep you off the pre-screened credit offers for 2 years.  You only need to call one Credit Reporting Agency, as they are required to share the information with the other agencies.

You can also choose to limit the sharing of your information by companies by “opting-out”.  There are several ways to do this:

Step One: Obtaining Your Credit Report:

In the US, the Credit Reporting Agencies may also sell your name to marketing firms.  To “opt out” of the selling of your information for marketing purposes, you may: (1) go to www.optoutprescreen.com, (2) call 888.5OPTOUT (888.567.8688) , or (3) use the Letter to Opt Out of Personal Information Release provided in the Sample Letter Index.

You may also want to contact the Direct Marketing Association to remove your name from their mailing and telephone listings obtained from other sources.  See their site for more details.

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For Canadians, the only information that I’ve been able to find on “opting out” is to contact the Canadian Marketing Association.  See their site for more details.  Also, you may want to check the Office of the Privacy Commissioner of Canada site.  If you are aware of other options available, please let me know!

Avoid Scams.

One prevalent scam is the “Credit Repair Clinic”.  This hits close to home. (I’m not a scam, really!!) These clinics will guarantee to remove negative information from your credit reports and charge you hundreds, sometimes thousands, of dollars.  In many cases, once you have paid them, they simply disappear with your money.  OR, you are paying someone to do what you could have done yourself…for FREE.

Read more on Credit Repair Clinics from the FTC.

Sadly, there are a large number of scams out there.  For more information on scams, please read the section ”Hoaxes, Scams, Etc.