Rebuilding Credit FAQ

Here are answers to some questions about improving a poor credit rating:>

Where do credit reports come from?

How can I get a copy of my credit report?

What should I do if I find mistakes in my credit report?

What can I do to rebuild my credit?

I’ve been told that I need to use credit to rebuild my credit. Is this true?

How many credit cards should I carry?

How long does it take to rebuild credit?

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What’s the first step in rebuilding credit?

To avoid getting into financial problems in the future, you must understand your flow of income and expenses. Some people call this making a budget. Others find the term budget too restrictive and use the term spending plan. Whatever you call it, spend at least two months writing down every expenditure. At each month’s end, compare your total expenses with your income. If you’re overspending, you have to cut back or find more income. As best you can, plan how you’ll spend your money each month.

For more detailed information on how to create a budget, see How to Make a Budget and Stick to It.

If you have trouble putting together your own budget, consider getting help from a non-profit group.  To locate a non-profit credit counselling organization near you, you can find useful information and helpful links at CanLaw (http://www.canlaw.com/credit/counselling.htm).  Another good resource is at the Canadian Credit Centre (http://www.canadiancreditcenter.com).

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Where do credit reports come from?

Credit reports are compiled by credit bureaus — private, for-profit companies that gather information about your credit history and sell it to banks, mortgage lenders, credit unions, credit card companies, department stores, insurance companies, landlords and employers.

Credit bureaus get most of their data from creditors. They also search court records for lawsuits, judgments and bankruptcy filings. And they go through county records to find recorded liens (legal claims).

To create a credit file for a given person, a credit bureau searches its computer files until it finds entries that match the name, the Social Insurance Number (the SIN – due to current concerns with identity thefts, you are no longer required to give your SIN, but it may be needed to locate the correct file) and any other available identifying information. All matches are gathered together to make the report.

Credit reports may include non-credit data such as names you previously went by, past and present addresses, Social Insurance Number, employment history, etc. Credit data includes the names of your creditors, type and number of each account, when each account was opened, your payment history, your credit limit or the original amount of a loan and your current balance. The report will show if an account has been turned over to a collection agency or is in dispute.

However, do keep in mind not all credit information is reported.  Mortgage lenders are notorious in not reporting, unless you are falling behind.  In other words, bad credit records are usually reported (not always correctly), but good records may not be.

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How can I get a copy of my credit report?

There are two major credit bureaus operating in Canada: Equifax and Trans Union. It’s best to order your report from both. Why?  Because, your mortgage broker (i.e. yours truly) may pull your credit report from Equifax, while the lender will pull another one from TransUnion, just to double check if there is anything missing from one bureau or the other.

For those who want to find out more about their own credit rating and what your credit scores (click HERE if you want to learn more about credit scores) are, you can go to the Equifax Canada Web site: http://www.equifax.com/EFX_Canada/ and the Trans-Union Web site: http://www.tuc.ca/TUCorp/home.asp

You will find full instructions on how to obtain those reports at both sites.  They will show you what the costs are as well, and how to obtain free ones.

Because of increasing problems with identity thefts, you should always jealously guard your Social Insurance Numbers.  Don’t give it out unless you know it is absolutely necessary, and never on-line unless you are certain the Internet connection is secured..

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What should I do if I find mistakes in my credit report?

As you read through your report, make a list of everything out of date.  Find out from each credit bureau what their record keeping policies are – such as how long they keep records on file.  Their policies may change, may vary from country to country, and may differ from those outlined below.  The credit bureaus should remove this information from your credit report:

• Lawsuits, paid tax liens, accounts sent out for collection, criminal records (except criminal convictions, which may be reported indefinitely), late payments and any other adverse information older than seven years.
• Bankruptcies older than ten years from the date of the last activity (usually the date you received your discharge or the date the case was dismissed, although credit bureaus sometimes start counting from the earlier date of filing).
• Credit inquiries (requests by companies for a copy of your report) older than two years.

Next, look for incorrect or misleading information, such as:

• incorrect or incomplete name, address, phone number, SIN or employment information
• bankruptcies not identified properly
• accounts not yours or lawsuits in which you were not involved
• incorrect account histories — such as late payments when you paid on time
• closed accounts listed as open — it may look as if you have too much open credit, and
• any account you closed that doesn’t say “closed by consumer.”

After reviewing your report, complete the “request for reinvestigation” form the credit bureau sent you, or send a letter listing each incorrect item and explain exactly what is wrong. Once the credit bureau receives your request, it must investigate the items you dispute and contact you within 30 days. Some states require bureaus to complete reinvestigations more quickly. If you don’t hear back within 30 days, send a follow-up letter. If you let the bureau know that you’re trying to obtain a mortgage or car loan, it can do a rush investigation.

If you are right, or if the creditor who provided the information can no longer verify it, the credit bureau must remove the information from your report. Often credit bureaus will remove an item on request without an investigation if rechecking the item is more bother than it’s worth.

If the credit bureau insists that the information is correct, contact the bureau to discuss the problem:

For Equifax: -

• phone 514 493 2314 or 1 800 465 7166 to request a copy of your report and further information
• mail a written request with copies of two pieces of identification to:

Equifax Canada Inc.

Consumer Relations Department

Box 190 Jean Talon Station

Montreal, Quebec

H1S 2Z2

• fax a written request with copies of two pieces of identification to: 514 355 8502
• e-mail a request to: consumer.relations@equifax.com

For TransUnion:-

• For residents of all provinces except Quebec:

• For residents of Quebec:

If you don’t get anywhere with the credit bureaus, directly contact the creditor and ask that the information be removed. Write to the customer service department, vice president of marketing and president or CEO. If the information was reported by a collection agency, send the agency a copy of your letter, too. Creditors are forbidden by law to report information they know is incorrect.  Don’t forget the Better Business Bureau if you cannot get satisfaction.

If you feel a credit bureau is wrongfully including information in your report, or you want to explain a particular entry, you have the right to put a brief statement in your report. The credit bureau must give a copy of your statement — or a summary — to anyone who requests your report. Be clear and concise; use the fewest words possible.

If you are right and can prove it, but are not getting cooperation from the Credit Bureaus, you should contact the Ministry of the Attorney General of your province.  They can order the credit bureaus to make the corrections (within 48 hours). after they are satisfied with your claim.

Also, you should know when you have made a recent payment on account, it does not necessarily get reported to the credit bureaus for 6 to 12 weeks.  So, if you have been late with payments and then pay them off at once, you should not expect that your credit reports will be cleaned up right away.  You need to keep statements or receipts from your creditors, as evidence that your accounts have indeed been paid up in full.

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What can I do to rebuild my credit?

After you’ve cleaned up your credit report, the key to rebuilding credit is to get positive information into your record. Here are two suggestions:

• If your credit report is missing accounts you pay on time, send the credit bureaus a recent account statement and copies of cancelled checks showing your payment history. Ask that these be added to your report. The credit bureau doesn’t have to, but often will.
• Creditors like to see evidence of stability, so if any of the following information is not in your report, send it to the bureaus and ask that it be added: your current employment, your previous employment (especially if you’ve been at your current job fewer than two years), your current residence, your telephone number (especially if it’s unlisted), your date of birth and your checking account number. Again, the credit bureau doesn’t have to add these, but often will.

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I’ve been told that I need to use credit to rebuild my credit. Is this true?

Yes. The one type of positive information creditors like to see in credit reports is credit payment history. If you have a credit card, use it every month. Make small purchases and pay them off to avoid interest charges. If you don’t have a credit card, apply for one. If your application is rejected, try to find a co-signer or apply for a secured card — where you deposit some money into a savings account and then get a credit card with a line of credit around the amount you deposited.

But a word of caution: It won’t do you any good in the long-run to apply for credit before you’re back on your feet financially. You’ll just end up with high cost credit that will put you back in the hole again. Even if you can get a card earlier, wait until you are ready to start using credit again.

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How many credit cards should I carry?

Once you succeed in getting a credit card, you might be hungry to apply for many more cards. Not so fast. Having too much credit may have contributed to your debt problems in the first place. Ideally, you should carry one or two bank credit cards, maybe one department store card and one gasoline card. Try to use all of the cards as long as you can pay the charges in full each month. Creditors want to see that you can handle more than one credit account at a time. You don’t need to build up interest charges on these cards, but use them and pay the bill in full.

Creditors frown on applicants who have a lot of open credit. So keeping many cards may mean that you’ll be turned down for other credit — perhaps credit you really need. And if your credit applications are turned down, your file will contain inquiries from the companies that rejected you. Your credit file will look like you were desperately trying to get credit, something creditors never like to see.

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How long does it take to rebuild credit?

If you follow the steps outlined above, it will usually take about two years to rebuild your credit so that you won’t be turned down for a major credit card or loan. After around four years, you should be able to qualify for a mortgage.

Last, but not least, make sure you understand credit scores.

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