Credit Reports and Credit Scores

by Jeffery A. Keill, CFP, CIM, FMA, FCSI, Portfolio Manager and Senior Wealth Advisor Keill & Associates- Advisory Team

If you use credit, then most likely you have credit history that is maintained by various credit reporting agencies that track and report how you use credit. Lenders, potential employers, and landlords may use this reporting to help get a sense of your financial reliability and repayment history.

What is in the Credit Report? Your credit report will include several key pieces of data about the debt you have, including:

• Who you have loans, credit cards, or other debt with,

• How much you owe,

• When you first opened the account,

• Have ever missed payments or have been on time with them,

• Have you ever exceeded your credit limit

  
  

What is a Credit Score and who creates it?

The Credit Score is a three digit number created by credit reporting agencies (known as a Credit Bureau). This number fluctuates based on positive and negative activities that have taken place in your credit history. When you act responsibly you gain points. The number in Canada falls between 300 to 900; of course, 900 being the better of the two points in range. This scoring number is sometimes referred to as your Beacon score. The agencies that create your credit score are private companies that simply collect, store, and sell information to members such as banks, credit unions. and other financial institutions. Common reporting agencies in Canada are Equifax Canada and Trans Union Canada.

How long is information kept on my credit file?

There are time limits, based on provincial laws, as to how long negative information can be kept on a credit file. For most information six or seven years is a maximum, depending on province and category of credit.

How are debts rated on a credit report?

Lenders will report to credit reporting agencies using a code containing a letter (to denote the type of credit arrangement you are using) and a number (to denote the past payment history). Below is a summary of a few of the common letters and numbers with their meaning.

I Installment Credit: You borrow money for a specific period of time and repay fixed amounts at regular intervals, until the loan is repaid.

Example: Car Loan

O Open Status Credit: You can borrow money when you need to, up to a certain limit.

Example: Line of Credit

R Revolving Credit: You can borrow money up to your credit limit on an ongoing basis. You make regular payments in varying amounts depending on the balance of your account.

Example: Credit Card

M Mortgage Loan: Mortgage information may be included on your credit report.

Example: Mortgage

0 (Zero) Too new to rate or approved credit not yet used.

Example: Credit Card issued but not authorized or used.

1 Paid within 30 days. Pays as agreed

2 Late Payment: 31 to 59 days late

3 Late Payment: 60 to 89 days late

4 Late payment : 90 to 119 days late

5 Late payment over 120 days late, but not yet rated "9"

6 This code is not used

7 Making regular payments under a consolidation order, Orderly Payments of Debt, consumer proposal, or Debt Management Program with a credit counselling agency

8 Repossession

9 Written off as "bad debt" sent to a collection agency. bankruptcy.

Example: if you have a credit card account that you paid on time, it would be reported as ‘R1’. If you have a Line of credit that you missed your payment by 45 days, it would be reported as “O2”.

How do I improve my credit score?

If you would like to improve your credit score you need to better basic factors in calculating your score.

1. Payment History: always make your payments on time.

2. Credit utilization: Try to use less than 1/3 of your available credit.

3. Length of credit history: Consider keeping an older account open, especially if there is no annual fee and use it from time to time to keep it active. Having only newer credit can lower your score.

4. Reduce number of inquires: Each time a lender requests your credit file it is known as a “hard hit” and can reduce your credit score. (Soft hits, such as when you request your credit score does not affect your score).

5. Types of credit: having a mx of different credit products can get your score higher, but don’t over do it!

How can Keill & Associates help?

Keill and Associates offers to walk clients through a process to obtain, review, and make recommendations to help client’s correct errors and to improve current credit scores. We encourage all clients review your credit report every three years to ensure accuracy. Contact us to help.

Disclaimer and Notice to Reader: This Discussion Paper should not be construed as legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family, please contact our Wealth Advisory team.

Last Edit Feb 3, 2025