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How to build a credit report

13 February 2020 by National Bank
Credit Report

Before lending you any credit, a bank will submit a request to an independent organization to consult your credit report. Here’s the information contained in this report, as well as expert advice for building and maintaining a good credit score. 

What is a credit report?

Your credit report provides a summary of your credit history. It depends on the way you use credit, but also on your timeliness in paying your bills.

Your report contains a credit score, which is also called a credit rating. This is a three-digit score that falls somewhere between 500 and 900. This score is updated regularly.

Many elements influence this score:

  • Your payment history: Have you accrued late payments or have your debts been sent to collection agencies?
  • The balance on your cards and your credit line: Is the ratio of the balance on your cards too high compared to your limits?
  • Your credit experience: Do you have a credit history? If so, do you have many accounts with a balance or have you accumulated too many late payments? 
  • Your credit requests: Did you make several credit requests within a short amount of time?
  • The types of credit to your name: Do you have too much credit of the same kind (credit cards, credit lines and loans)?

Why is it important to have a good credit report?

When you ask for credit, your score is a determining factor in the loaner’s decision. A high score is a gage of your dependability. Other elements are also taken into account, such as your income, your current job and your assets.

Whether you’re thinking of buying property, taking out a car loan or starting a business, a good credit report will allow you to achieve your goals. “We explain to students who are thinking about opening a dental clinic or an engineering firm that, to get a bank loan, their credit report is their main ally. It guarantees their reputation as someone who can repay a loan,” says Sylvie Coulombe, director, newcomer partnerships at the National Bank.

“Credit reports are the basis of the Canadian banking system. This system doesn’t work the same way as in Europe, for example. One of the elements that influences credit scores here is the number of credit requests made in recent months. Signing up for ten credit cards within a short period affects your credit report. It’s crucial for newcomers to this country to take the time to understand the particularities of our system,” adds Sylvie Coulombe. 

Understanding how personal credit reports work allows you to maintain a good credit score and sign up for credits cards or loans with more peace of mind. A good report can also help you get better repayment terms or a lower interest rate when requesting a loan.

To determine your dependability, a property owner or an employer may also consult your credit report.

How do you make sure you have a good credit score?

Your credit report is created the moment you make your first request for credit. While some financial solutions are offered to people who don’t have any previous credit, it’s easier to get a loan when you have a credit report.

For newcomers, having a steady income and a good payment history for your bills are also positive factors in getting approved for a loan. These elements demonstrate your ability to honour your financial obligations.

“We advise newcomers and students to start using a credit card as soon as possible just to create a credit report. More importantly, we recommend they use their card the right way, paying it off in part or fully by the due date,” says Sylvie Coulombe.

If your credit report was impacted by poor actions in the past, you can still take the initiative to improve your score. “There are ways to rectify the situation by sitting down with an advisor to understand how a credit report works. You can then make a plan to improve your score and move forward with your goals as soon as possible.”

Need a credit card?

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How do you get a copy of your credit report?

Upon request, you can obtain your report from a consumer credit reporting agency, also called a credit bureau. Equifax and TransUnion are two of the biggest such organizations in Canada.

You can get a free credit report by contacting a credit bureau by phone, by mail or in person.

If you submit a credit request to the bank, your advisor will have to consult your credit report. “They will then be able to show you their screen and help you interpret your credit score,” explains Sylvie Coulombe. “It’s our job to explain how the system works to help our clients become autonomous, help them understand how to use their credit card and, above all, help them see how much their financial management affects their credit report.”

Consider checking your credit report sporadically to ensure that it matches up to reality. The Financial Consumer Agency of Canada suggests checking it at least once a year.

“By definition, credit reports also include all your personal information, like where you live and how many credit cards you own,” Sylvie Coulombe points out. “That’s why they’re highly confidential.”

How do you know if your credit report is strong enough to buy a home?

An expert can analyze your credit report and give you a mortgage pre-approval. That way, before you even start to look, you’ll be aware of your situation and know which properties you can afford.

If you’re a newcomer who wants to buy property but don’t yet have a presence in a credit bureau’s files, know that banks have other ways of verifying your credit history. They can get confirmations of your rent payments over a set period or check that you pay regularly by looking at public-record bills like your electricity or cell phone bill.

Whether you want to build your credit report, maintain your credit score or improve it, speaking with your advisor is key. They will help you take control of your credit report so you can achieve your goals.

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