FA-2.4 - Credit Files and Scores: When System Exists - and When It Doesn't

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FINANCIALLY AESTHETIC · GUIDE 10/37
CREDIT FILES AND SCORES: WHEN THE SYSTEM EXISTS - AND WHEN IT DOESN'T
FA-2.4 · Banking, Payments & Credit
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Spoiler: THREAD SONG

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WHAT THIS CONTROLS

Credit scoring isn't a universal law of money; it's a jurisdiction-specific reputation system.

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The Credit Report and How It Works

Your credit report is a summary of how you’ve used credit in the past (your credit history). Credit bureaus, also known as “credit reporting agencies,” create your credit report when you borrow money or make a credit inquiry for the first time.

It contains information about:

• your credit cards, loans, and mortgages
• the amount of your debt
• whether or not you make your payments on time

Lenders send information about your credit accounts to credit bureaus.

Your credit report helps other lenders decide whether they can trust you to repay the money. It affects your ability to get a credit card, a loan, a mortgage, or even to rent an apartment.

What’s in Your Report

Your credit report includes personal and financial information, as well as information about your credit history. Credit bureaus update your credit report at least once a month.

Personal information:

• your name
• your date of birth
• your current and previous addresses
• your current phone number and previous phone numbers
• your social insurance number (SIN)
• your driver's license number
• your passport number
• the name of your current employer and previous employers
• Your current job title and previous job titles

Financial Information:

• Credit utilization, including credit cards, loans, lines of credit, and store cards
• payments with insufficient funds or bounced cheques
• Bankruptcy or court rulings related to your credit
• Debts sent to collection agencies
• Inquiries from lenders who have requested your credit report within the last 3 years
• recorded encumbrances, such as a lien on a car that allows the lender to repossess it if you miss payments
• Notes, including consumer statements, fraud alerts, and identity verification notes

For each credit card and loan, your credit report may include:

• the account opening date
• the amount of your debt
• whether you make your payments on time or miss payments
• whether your lender sends your debt to a collection agency
• whether you exceed your credit limit

Accounts that were closed for valid reasons may also appear on your credit report. For example, checking accounts or savings accounts closed due to missed payments or fraud.

Credit bureaus may include more accounts in your credit report:

• phone, Internet, or utility accounts
• information about your mortgage
• your mortgage payment history
• your home equity line of credit, which may appear as part of your mortgage or as a separate account

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Credit Score: What It Measures

Your credit score is a 3-digit number derived from your credit report. It indicates how likely you are to repay the money you borrow.

Lenders use your credit score to assess the risk of lending you money. This is called creditworthiness.

Your credit score changes over time as lenders update your credit history.

Your score:

• goes up when you pay your bills on time and have responsible credit utilization
• decreases when you miss payments or have too much debt

Scores typically range from 300 to 900. A higher score is better.

What Affects Your Score - and What It Actually Measures

Credit bureaus and lenders use different formulas to calculate your credit score, but they don’t share the exact details.

However, there are common factors that affect your score. These factors include:

• your credit history:
• how long you’ve had credit
• how long each account has been on your credit report
• the type of credit you use
• whether your debts have been sent to a collection agency
• whether you have ever filed for insolvency or bankruptcy
• Your credit habits:
• whether you carry a balance on your credit cards
• if you forget to make payments
• the amount of your debt
• whether you’ve almost reached or exceeded your credit limit
• how often you make new credit inquiries

Imagine you have a credit card with a $5,000 credit limit. You regularly owe $4,500. Lenders might consider you a higher risk than someone who owes $1,000 a month.

The credit score you see may differ from the one a lender sees. The lender may place greater weight on certain information when calculating your score.

What the credit score measures, therefore, is past and present repayment behavior - not overall financial capacity, not income, not net worth. The credit report on which it is based collects only information related to credit activities; Canadian credit bureaus “collect only information about your credit activities in Canada.”

Why This History Matters Beyond the Interest Rate

Lenders check your credit history to decide:

• whether to offer you a loan
• what interest rate to charge you
• what credit limit to offer you

A good credit history can help you get more credit at better rates.

A poor credit history or a limited credit history can make it harder to borrow money or get a credit card. It can even affect your ability to rent an apartment or find a job.

Checking your credit report regularly can help you detect signs of fraud or identity theft.

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Who Creates the Report, Who Can Access It

In Canada, there are two main credit bureaus:

• Equifax
• TransUnion

They track your credit history and maintain your credit report and credit score. They collect and store information about your credit, which they then share with lenders and other authorized parties. They only collect information about your credit activities in Canada.

Some lenders may review your credit history outside of Canada. You may need to provide your credit report from another country and meet with a bank representative.

Credit bureaus follow rules regarding who can access your credit report.

Those who may request access to your credit report include:

• banks, credit unions, and other financial institutions
• credit card companies
• car rental companies
• telephone and Internet service providers
• utility companies
• insurance companies
• governments
• employers
• landlords

They may use your credit report to make decisions about you, such as:

• providing you with loans
• calculating your interest rate
• increasing your credit limit
• collections of debts
• providing you with insurance
• rent you a place to live
• hire you for a job

Checking your own credit report or credit score does not affect your credit score.

When a lender or organization “checks your credit” or “pulls your credit report,” it creates an inquiry on your credit report.

In most provinces in Canada, you must give your consent before a company or individual can check your credit.

When you sign a credit inquiry, you are giving your consent. This consent generally lasts as long as you keep the account open. Your consent also allows lenders to send your information to credit bureaus after they approve your application. However, in these 3 provinces, a company or individual only needs to notify you that they are conducting a credit check on your credit report:

• Nova Scotia
• Prince Edward Island
• Saskatchewan

In some cases, certain government officials, such as judges or police officers, may access your credit report without your consent.

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Accessing Your Own Report and Score

You can access your credit report for free online through Canada’s two main credit bureaus: Equifax and TransUnion. Both credit bureaus allow you to download or print your credit report and view information that is updated monthly. Other companies may also offer your credit report for free.

You can also ask Equifax and TransUnion to mail you a free copy of your credit report by filling out a form (along with photocopies of two valid forms of identification) or by phone, after answering some identification questions. In some provinces or territories, you can request your free credit report at an Equifax or TransUnion office by bringing at least two valid forms of identification.

Credit bureaus update your credit score at least once a month. You can access your credit score online through Canada’s two major credit bureaus:

• Equifax: free in all provinces and territories
• TransUnion: free if you live in Quebec or Ontario (included in your Consumer Report)

You can also obtain your credit score from Equifax for free through methods other than online (for example, by phone or mail). If you live in Quebec or Ontario, you can also submit a request to TransUnion. You’ll need to provide the required forms of identification.

Other companies may also offer your credit score for free. Some may ask you to sign up for a paid service to get your score. Certain federally regulated financial institutions may also provide your credit score for free through their banking app.

Be Vigilant Against Fraud

Fraudsters may pretend to offer credit reports or credit scores for free in order to steal your personal or financial information.

Before giving your personal or financial information to a company to obtain your credit report or credit score:

• research the company to make sure it’s legitimate
• carefully read its terms of use and privacy policy
• check how it plans to use and store your information
• check whether it will sell your information to third parties

Some companies may collect and sell your personal information to third parties. If this happens, you may receive unexpected offers for products and services.

Always check whether a website is secure before providing any personal information. The address of a secure website will begin with “https” instead of “http.”

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A Different System: The French Negative Credit File (FICP)

The Canadian model described above - a comprehensive record tracking the entire credit history, both positive and negative, converted into a continuous score ranging from 300 to 900 - is not the only model in existence. France has a structurally different system: a negative credit registry, which records only credit incidents, without an associated credit score.

The FICP records only payment incidents on credits granted to individuals, including overdrafts. A record may be created for several reasons:

• a delay in repaying a credit;
• an outstanding overdraft, whether authorized or not;
• the deposit of an over-indebtedness case that is under review or for which measures have been taken.

When a Record Is Created

A “qualified payment incident” - that is, an incident that results in a record being filed with the Banque de France - occurs when a person:

• has accumulated, for a credit repayable monthly, a late payment equal to the amount of the last two installments due;
• for a credit repayable on a schedule other than monthly, a late payment that results in missed payments for more than 60 days equals the amount of an installment that has been missed;
• still owes, for a credit without fixed installments (such as an overdraft), at least 500 euros within 60 days after receiving a formal notice from their bank;
• must repay the credit immediately and in full if a financial institution has initiated legal proceedings against the borrower or has declared the “acceleration of the term” after a formal notice went unheeded.

In all cases, the financial institution must notify you and ask you to resolve your situation. You then have 30 days to do so. If you fail to do so, the institution will report you to the FICP.

The registration period is then a maximum of five years.

Good to know: Being listed on the FICP does not prevent you from taking out a new credit. However, lenders systematically check the FICP before granting a new credit. Your status with the FICP is a factor considered when determining a customer’s creditworthiness - that is, their ability to repay a requested loan. A listing on the FICP may be viewed as a negative factor when reviewing a credit inquiry.

Removing Your Name from the Registry

You must repay the amounts owed, that is, settle the amounts corresponding to:

• the incident that led to the listing;
• subsequent incidents affecting the repayment of the same credit;
• interest and penalties due under the terms of the loan contract.

Good to know: Fees incurred by the lender to recover the amounts owed (legal proceedings, mailing of letters, reminders, etc.) that do not stem directly from the credit contract cannot be considered amounts owed for the purpose of having the incident removed from the Banque de France’s records.

The case of over-indebtedness follows a different process: you are registered with the FICP by the over-indebtedness commission as soon as you deposit your over-indebtedness case and remain so for the entire duration of its processing. You then remain registered for a period that varies depending on the outcome of the proceedings:

• for a maximum of seven years for a conventional rehabilitation plan, a measure imposed by the Over-Indebtedness Commission;
• for a period of five years if you have been subject to a personal rehabilitation procedure (PRP) or a consumer bankruptcy judgment in the departments of Bas-Rhin, Haut-Rhin, or Moselle.

At any time, if you are able to pay all amounts owed to all your creditors, they will issue you payment certificates, which you must submit to the Banque de France.

Otherwise, if no payment incidents were recorded during the first five years of your voluntary arrangement or the imposed measure, your record will be automatically expunged at the end of this five-year period.

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Two Approaches, Two Realities for the Borrower

What the comparison reveals - and what it does not claim to do

Canada serves here as an example of a system that uses a credit report and a positive credit score. France serves as an example of a different approach, centered here on the FICP, which records payment incidents. This chapter does not assume that a “French Equifax” exists, nor that all countries replicate one of these two models.

The two systems presented here do not measure the same things and do not function in the same way. The Canadian system builds a continuous credit history - including both positive and negative information - which is converted into a numerical score used by a wide range of entities (lenders, insurers, employers, landlords) to assess an overall risk of default, based on credit history and spending habits. The French FICP system, by contrast, records only specific incidents - late payments, unpaid overdrafts, cases of over-indebtedness - without generating a credit score; the absence of an entry does not equate to a “good credit score,” and an entry does not automatically bar access to new credit, even though institutions systematically consult the database before making any decision.

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OPERATING RULE

Learn the system where you live, check the underlying file and don't import US credit advice blindly.

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CURRENT-RULES CHECK

Legal protections, tax rates, reporting duties, deadlines and product rules change by country and over time. Use the jurisdiction labels in this guide and check the linked official source before acting.

Spoiler: ◇ BACKUP LINKS

• CFPB - Credit reports and scores - United States - credit-file system.
• CFPB - Understand your credit score - United States - scoring factors.