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- Outdated Items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.