How to check your credit rating — and why everyone should

Everyone who's ever borrowed money to buy a car or a house, or applied for a credit card or any other personal loan has a credit file. Because we love to borrow money, that means almost every adult Canadian has a credit file. More than 21 million of us have credit reports. And most of us have no idea what's in them.

Are there mistakes? Have you been denied credit and don't know why? Is someone trying to steal your identity? A simple check of your credit report will probably answer all those questions. And it's free for the asking.

So what's in a credit report?

A surprising amount of detail, actually. It contains information about every loan you've taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account, and a list of authorized credit grantors who have accessed your file.

Each of the accounts includes a notation that includes a letter and a number. The letter "R" refers to a revolving debt, while the letter "I" stands for an instalment account. The numbers go from 0 (too new to rate) to 9 (bad debt or placed for collection or bankruptcy.) For a revolving account, an R1 rating is the notation to have. That signifies that you pay your bills within 30 days, or "as agreed."

Any company that's thinking of granting you credit or providing you with a service that involves you receiving something before you pay for it (like phone service or a rental apartment) can get a copy of your credit report. Needless to say, they want to see lots of "Paid as agreed" notations in your file. And your credit report has a long history. Information remains on file for six years.

What's a credit score? And why is it so important?

A credit score (also called a FICO score) is not part of a regular credit report. Basically, it's a mathematical formula that translates the data in a credit report into a three-digit number that lenders use to make credit decisions.

The numbers go from 300 to 900. The higher the number the better. For example, a number of 750 to 799 is shared by 27 per cent of the population. Statistics show that only two per cent of the borrowers in this category will default on a loan or go bankrupt in the next two years. So that means that anyone with this score is very likely to get that loan or mortgage they've applied for.

How can I get a copy of my credit report and credit score?

You can ask for a free copy of your credit report by mail. There are two main credit bureaus in Canada: Equifax Canada and TransUnion Canada.

Complete details on how to order credit reports are available online. Basically, you have to send in photocopies of two pieces of identification, along with some basic background information. The reports will come back in two to three weeks.

The "free-report-by-mail" links are not prominently displayed - the companies are anxious to sell you instant access to your report online. For TransUnion, the instructions to get a free credit report by mail are available here.. For Equifax, it's easier to phone 1-800-278-0278 and listen to a recording. If you can't wait for a free report by mail, you can always get an instant credit report online. TransUnion charges $14.95. Equifax's rate is $15.50.

To get your all-important credit score, you'll have to spend a bit more. Both Equifax and Trans Union offer consumers real-time online access to their credit score (your credit report is also included). Equifax charges $23.95, while TransUnion's fee is $22.90.

What if I find an error in my credit report?

Well, you won't be the first. In millions of files and hundreds of millions of reported entries, there are bound to be mistakes. Some are minor data-entry errors. Others are damaging whoppers. For example, we've heard of instances where negative credit files from one person got posted to the file of someone who had a similar name (the "close enough" school of credit reporting).

Years ago, CBC's Marketplace program asked 100 people to look over their credit reports to see if there were any mistakes. Were there! More than 40 people spotted errors. And in 13 of the cases, they were serious enough to affect their credit status. So check your report carefully!

And if you spot entries that don't seem to relate to you (such as charge accounts you never opened or bad debt notations you never got), you may be a victim of the rapidly-growing crime of identity theft. You should notify the credit reporting company immediately.

What are credit monitoring services?

There are companies that will take the effort of checking your credit report off your hands - for a price. Usually, a pretty steep price. If you go to TransUnion's website, for instance, the first thing you see is their effort to sell you on their credit monitoring service. It costs $14.95 a month and includes unlimited access to your credit report and credit score.

There are several other companies offering the same service for similar prices. They usually include features like e-mail alerts when there's a change to your credit report.

It's a personal decision whether the service is worth the money. The bottom line is: You can always check your credit report for free by mail. Or, you could pay to get it online whenever you want. But for people who have been the victims of identity theft or people worried that they may be susceptible to ID theft, the expense may be worth it to ease the anxiety.

Should I pay to use a credit repair service?

In a word, no. Firms that say they can "fix" a bad credit report are often little more than fly-by-night operations designed to relieve you of hundreds of dollars in return for nothing. The only thing they can fix on your behalf is an inaccuracy in your credit file. And you can do that yourself free of charge.

Simply write the credit reporting agency and tell them you think there's an error in your file. The credit reporting agency sends along the form you need when it sends you the credit report. Use it to spell out the details of any information you dispute. And there's a form online, too. Also send along any documents that support your version of the matter in dispute. The reporting agency then contacts whoever submitted the information you're disputing.

If the file is changed, you will be sent a copy of your new report and any company that's requested your credit file in the previous two months will also be sent the corrected file.

If the item is not changed to your satisfaction, you have the right to add a brief statement to your credit file with your side of the story. You can also ask to have your credit file, along with your comment on the disputed entry, sent to any company that has requested your credit report in the previous two months.

There's no way a credit repair clinic can change accurate information that doesn't reflect well on you. A statement from Equifax puts it bluntly: "Only responsible credit practices over time can improve a poor credit history."

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