For many of us, credit scores are one important number on a page of confusing text and alphanumeric codes, consulted annually — or less frequently — when applying for an apartment rental or mortgage. Credit reports can seem cryptic and hard for the average consumer to interpret. But reading them – and understanding them – are important to maintaining good credit.
According to Equifax Canada — one of two main credit-reporting agencies in Canada, along with TransUnion Canada — Canadians should be consulting their reports once a year and verifying that the information is accurate and up-to-date.
Here’s a quick-and-dirty guide to what your report contains and what it means:
Your Credit Bureau Report
Here’s what the first page of your credit bureau report generally looks like:
So, what do these codes mean?
Beacon Score: This score will directly impact the interest rate you qualify for on a loan. It’s created by an algorithm, and reflects your credit-worthiness, and the risk of delinquency you pose to a lender. These scores range between 250 – 850. Generally, scores above 780 fall into the highest 20 per cent, while those below 619 are considered in the bottom 20 per cent.
Derogatory Public Record or Collection Filed: This indicates that there is at least one delinquent (over 90 days due and went to collections) debt recorded on this report.
Too Few Bank / Revolving Accounts: The bureau has indicated this borrower does not have enough revolving credit loans open for an optimum score.
Bank Nav. Index: Also referred to as the BNI 2.0, this number indicates the likelihood that you’ll declare bankruptcy within 24 months. This score ranges from the negatives to 2,000.
Thick Prime Credit File Scorecard: This indicates that the individual does have a history with prime credit, such as a credit card or loan from a major bank.
Consumer Risk Predictor: Indicated as CRP 3.0, this refers to the likelihood that this borrower will let a debt fall into delinquency over the next 24 months. The lower the score, the higher the chance of delinquency.
Thin Subprime Credit File: This indicates that the individual has not taken out any subprime loans or debts with an alternative lender.
Equifax Risk Score: Indicated as ERS 2.0, this refers to the likelihood that this borrower will let a debt fall into delinquency over the next 12 months. The lower the score, the higher the chance of delinquency.
Understanding Your Payment History
Towards the bottom of your bureau report, you’ll find a list of every current and past regular bill, loan, or revolving line of credit.
Those letters and numbers do stand for something: “Every piece of credit history information in your credit file is assigned a rating by the credit grantor,” an Equifax spokesperson explains. The most frequently used ratings are North American Standard Account Ratings which appear as an “R” with an accompanying number. The ‘R’ is used to indicate that the information being described involves revolving credit — such as a regularly used credit card. The numbers correspond with the manner of payment. Always paying on time will net you an R1, whereas if you never paid an amount back and it was marked by the creditor as debt placed for collection, you’ll receive an R9.
Other letter codes include M for mortgage, L for lease, I for installment loan, O for open credit, and C for line of credit.
The report above indicates that the borrower currently has an installement loan that has always been paid on time, and previously had a revolving credit card, paid on time, and has since been closed.
Common Credit Misconceptions
According to the Equifax Canada, many Canadians think that credit-reporting agencies are the ones deciding whether to give or deny credit. That’s false. These agencies provide the reports, but it is the creditor (such as a mortgage lender) who makes the decision based on the information in the reports.
Another common consumer misconception is that once a debt is paid off, it will no longer appear on one’s credit report. “In fact, the credit report is really a historical record of your credit and there are specific purge rules that apply to certain debts. A credit file shows past and present transactions,” our spokesperson says.
How to Clean Up Your Report
How can you increase your score? Pay back your debts — such as a credit card bills — on time, consistently.
If you think an item on your report is a mistake — such as an old debt that you paid off many years ago — you can contact the credit reporting agency to discuss whether the item can be removed. You should also contact the agency if you notice errors in your personal information.