We all, of course, know that having a credit history is very important in order to receive any credit. Majority of us do have a credit history. Great! However, it’s even better to have a good credit history! This is exactly what we shall talk about today.

The credit system has been operational for a long time and today it is very hard to image a life without the opportunity of borrowing money. Ok, cars and large house appliances are something you can save the money for, but the house itself… Very few are able to buy the house at once without a loan - mortgage. Thus, disliking the credit system and saying that we will live using only our money is possible (and even good), but knowing what a credit line is, how it works and having it is absolutely necessary.

Credit history can be thought off as an enumeration of all of our loans, paid off and not paid off, in all financial establishments and the rating based on these loans.

It can be said that the credit history shows, numerically, your willingness to pay back your debts. The smaller the number, the greater the chances that the bank might have difficulties with you in the future, consequently, as the bank tries to reinsure it self, you will be offered a loan with a higher interest rate.

It can be said that the system is right, wrong or does not reflect all the nuances, yet, this is the system that is used and we have to understand it.

Credit history begins from the moment of receiving your first credit card (banks: Visa, Master Card; or retailers: Zellers, Canadian Tire, The Bay, Sears, etc.). Irrelevant of the type – Visa or Zellers card, credit history has already started. Although bank’s cards are preferable, they are more challenging for immigrants to receive, since having a job is required (the more experience, the better). If you have started working only recently, it is sometimes possible to get a bank’s credit card with an initial security deposit. But this deposit, playing a protective role, usually freezes for 2 years; in addition, the amount of this deposit is dictated by the bank. For example, for $1,000 of requested credit on the card, it is necessary to deposit $1,500.

Another way is to ask your relatives or friends with enough credit history to act as a co-signer, i.e. to ask someone to accept responsibility along with you, and pay back the loans incase you become insolvent. Those who act as a co-signer for the not-so-close people should be careful, since in case the applicant is unable to pay back the debt, you will be responsible.

For the purpose of creating a good credit history, it is irrelevant whether initially you have Visa for $500 or $3,000. Important thing is how you handle your financial obligations and your rating.

Checking of your credit history, let’s say by the bank, reveals the following information:

• Full name, SIN;
• Current and past place of residence;
• Place of work and position (if the information is up to date);
• All the previous inquiries about your credit history (date, organization’s name, telephone);
• Organizations that you have worked in;
• Names and addresses of your accounts in banks;
• List of your obligations (credit lines, bank cards, retailer cards, loans), limit and balance on all accounts.

Credit history is very important in Canada, and that’s why occasionally you need to check it. You can do this in two ways: free of charge or for money. Both options have no affect on your score, if you do this your self.

In Canada there are two bureaus that offer this service – Equifax Credit Information Services Canada (www.equifax.ca) and Trans Union of Canada (www.transunion.ca)..

Credit history can be obtained free of charge directly from the office of credit bureau at EQUIFAX CANADA INC. You will need to show up, with documents confirming your identity and a SIN card, to the address: 5700 Yonge St. Food Court Area, Toronto. You can also call Equifax at 1-800-465-7166 or send an inquiry to the address - P.O. Box 190, Postal Station Jean Talon, Montreal, PQ H1S 2Z2.

If you are checking your credit history for free, you can see all your liabilities and how you are paying them back. A free check should be performed at least once a year with the main goal of checking for errors. Unfortunately errors do occur and must be fixed in time.

Financial institutions can commit inaccuracies. For example, upon closure of one Visa credit card and reception of a new one in the same bank, it may be the case that both credit cards will be shown in your credit history along with corresponding debts for both cards. Obviously this is detrimental for the score. You will have to make an inquiry and mistakes will be corrected.

If you want more comprehensive information about your credit history, you need to pay. Access to, already printed, credit history is allowed for 30 days after you pay for it on the internet. After this, to check your score, you need to pay again to receive the latest information.

$15.50 - is the cost for credit history (without the score), which is the same as the one you would get for free. In principle, it doesn’t make sense to pay for this, since you can get the same thing for free.

If you pay a little more, $23.95 + tax, then you will be able to see not only enumeration of debts and their rating, but also your score and explanation - how the bank rates you and why you have this particular score. As well, you get recommendations on what you need to do to change your situation. To check your credit history you need to go to www.equifax.ca and choose the desired option.

Opposite to each line, which represents existing debt, there is a letter R or I along with a number from 0 to 9. These numbers reflect your tendency to pay back your debts.

Number 0 represents approval for the credit – you have just opened an account but have not started using it.

1 - You pay back your balance on time and you have not missed any payments.

2 - Some payments were late by 30 - 60 days. No more than 2 late payments.

3 - Some payments were late by 60 - 90 days. No more than 3 late payments.

4 - Some payments were late by 90 - 120 days. No more than 4 late payments.

5 - Your payments were late by 120 or more days, however, you don’t get the worst score yet.

6 - You make regular payments based on a special agreement with the financial institution, for example, consolidation order or consumer proposal, etc.

7 - Repossession (voluntary or involuntary).

8, 9 - Bad debts, unable to locate, placed for collection, skip.

Letter R represents a credit that is revolving, meaning, you pay it off and are able to use it again. Usually these are credit cards and credit line debts.

Letter I represents a debt with specific amount, which you must pay through fixed monthly instalments. Usually this is a loan on something major, such as a car or a student loan.

If you know you have not missed any deadlines for paying back your debts, then your responsibility is to check for errors, and it is satisfactory to obtain a free credit history.

Upon credit lending, the main object of interest for financial institutions is the score. Higher score is better. The score fluctuates between 300 and 900.

If your score is:

300 - 540 - credit history is very bad and no one will be giving you money.

540 - 580 - credit history is bad, but small banks, "Lender B" banks, might give you a mortgage.

580 - 620 - obtaining a mortgage is possible, even with "Lender A" banks, however, the down payment must be no less than 15%.

620 - 650 - this is lower than average, but the banks will be ready to offer you a mortgage. It’s better to make the down payment greater than 5%, however, even with such a percentage it possible to obtain a mortgage.

650 - 680 - mortgage with 5% is obtainable with all the banks, however, 100% financing is not for you yet, unless you are working with “Lender B”.

680 and up - you are good to go with any down payment, even without it, however you must be working full-time.

700 and up - 100% financing is possible even if you are self-employed, however you must earn sufficient income.

Do you know your credit score? It makes sense to know this information before you turn to financial institutions for a credit.

It’s important to know that all declarations about obtaining credit cards, loans and credit lines are registered in your credit history. Therefore, if you were turned down in a few organizations, it is better to take a few months break and then try again, instead of trying over and over again. Remember, each entrance in your credit history may lower your total score, which is very undesirable.

For those who feel there might be problems with their credit history (many debts, turned down for a credit, etc.), it’s better to check your score on the internet prior to asking for credit. With the credit history in your hands you can consult a specialist regarding what ever problems are present and ways to avoid them.

Let’s say, for example, that you have checked your credit history and want to know what influences the score and how you can increase it. Furthermore, you would like to know how to do this as soon as possible.

The following 5 points affect the credit history in major ways:

1. Your past. The way you used your credit in the past and how readily you followed the deadlines. Level of influence - 35%.

2. Amount of debt you have - 30%.

3. Amount of time you have had a credit history - 15%.

4. Number of requests for credit, in comparison to the number of times the credit was obtained - 10%.

5. Credits from various financial institutions - 10%.

Lets take a look at this information with more detail.

Your past.

Obviously, information about your payments on debts and how often you missed the deadlines is very important. If the payment is a little bit past the deadline, usually there are no severe consequences. Large banks do not punish for one late payment, however smaller banks sometimes turn to credit bureau upon the end of the 30 day period after the deadline. Therefore, missed or partial payments drag your score down. If you happen to payback above the minimum required amount, that’s good, however, if you go over the maximum allowed credit in any month, it is very bad and seriously ruins your credit history. If you are to payback your debt in full on your credit card - great! Lets image a scenario where a person has a credit card with attractive incentive - the more money is spend the more certain kind of points the card holder gets. The person tried to use the card more frequently, spends the credit almost to the maximum and repays the collected debt. Everything is good, yet things can be improved further. The financial institution, with which you have your credit card, sends you a statement on a specific date of the month, and provides you with a 20-day period for paying back your debt. You pay it, but the credit bureau receives information that such-and-such amount if spent by you - remember, a large debt lowers your score? That is, it’s good that you pay your balance all at once, as soon as you receive the statement, that way you don’t pay the interest on the transactions and collect the points; however, if you pay back your debt a little sooner, for example without waiting for the statement to arrive, then you will be much more effective in keeping your credit history in good standing. You have collected the points using your credit card, yet the credit bureau receives information about smaller debts.

Let’s take a look at some examples:

• A person has two credit cards with 19% interest and has spent half of the maximum $10,000 credit available on each card. Let’s say, there is an offer from a third-party company to consolidate debts on $10,000 with 5.99% over a 6-month period. This, now happy, person transfers all $10,000 into the new card and, correspondingly, spends all the given $10,000. He/she of course saves on the percentages, but the credit history is worse off, since 100% of the credit is spent. Be attentive.
• Another example. Someone has 5 credit cards with different interest rates and with the sum total of $50,000. $20,000 is spent - 40% of the total debt. The owner of the credit cards decides to terminate 2 cards with total sum of $20,000, so that there is no temptation. What is the final outcome? The debt balance, in comparison to possible credit amount, shifts from 40% to 68% and will deteriorate your credit history.

The amount of time you have had your credit history.

Credit history of less than 2 years is considered immature, older than 2 years on the other hand is much better. For example, it is necessary to have a credit history for longer than 2 years if one wishes to buy property without a down payment. Meaning, one should try to acquire any credits as soon as possible. For example, retailer’s credit card is the easiest to get, you can start with that, thus starting your credit history. Or you can get secured credit card, that is, to place some monetary amount on a special account. That way, both, new immigrants and a person who recently went bankrupt can start a credit history. For those who are self-employed, a minimum 2-year-old credit history is required.

Number of requests as compared to the number of received credits.

From time to time, we all turn to financial institutions to request different loans. As everyone now understands, each request potentially influences the credit history. It is necessary to follow certain rules of the game. Requesting different types of credit has the most influence on the credit line. Different types of credit may be: credit line, credit card, credit on the car, investment loan, etc. Requests for identical type of credit, in few different financial institutions over a short period of time, have a much smaller influence on the credit history. A break of no more than 2 weeks, even between requests for identical credit type, is already worse than no break at all. For example, someone has to get a credit line for 30-40 thousand dollars. It’s easier to request from 2-3 banks at once and get the desired, rather than turn to only one bank for such relatively large amount. Property used as collateral for a credit line is a good way to positively affect the credit history.

Credits from different financial institutions.

We all have different credits with various financial institutions, but these credits influence the credit history differently. Credit cards from large banks are more desirable. Retail cards are significantly less important for credit history evaluation and thus, if are not used, should be closed.

And, of course, various types of problems with paying back debts, collection agency, judgment, consumer proposal, bankruptcy, and etc, all have significant, negative influence on the credit history. Situations may vary and you are better off fighting unjust payments, than simply stopping the payments and doing nothing. That is not the answer, since you are hurting only your self.

A bad credit that resulted from bank’s wrong doing may be officially corrected. There is a specific procedure for entering information about those who miss payment deadlines. The process is very cumbersome and not all financial institutions complete everything right. If an organization does not adhere perfectly to such a process, you can point this out and the organization is obligated to recall the erroneous data. This way your rating automatically increases. There are special organizations in existence that look after the correctness and accuracy of such processes.

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