How to read a credit report and understand your credit score

Credit reports can be confusing, but that doesn't mean you have to stay confused. Learn how to read a credit report, understand your score, and more.

When you're new to managing your own money, learning how to read a credit report and understanding your credit score can seem like learning a foreign language. Don't let that stop you from diving in — the more you grasp early on, the better equipped you'll be to make the right credit and borrowing choices for a strong financial future.

So, let's start with the basics. Here are answers to some common credit questions you might have. 

What is a credit report?

At its most basic, a credit report is a record of your financial behaviour. More specifically, it tracks how well you've managed your payments for various accounts. This includes credit accounts where you've borrowed money, such as student loans, credit cards, credit lines, and mortgages. The same goes for utility payments, like heat and hydro, and even cell phone and internet bills.

Understanding how to read a credit report can be tricky if you don't know what to look for. First, it includes your personal identifying information, such as your name, date of birth, employment information, and addresses (both current and recent). It also has many short forms and codes describing your payment history for each credit account. This useful page on understanding your credit report from the government of Canada goes over each of these sections and codes in detail.

Where can I get my credit report and score in Canada?

Canada has two main credit bureaus: Transunion and Equifax Canada. They collect and provide credit information, and you can order your credit report directly from them. Canadians are entitled to their full credit reports in writing or online for free once per year. 

It's also becoming increasingly common in Canada for banks to give customers access to their current credit scores as a free benefit, so check your online banking to see if you can view your score there.

How is my credit score calculated?

Although it's hard to find a definite mathematical formula, Equifax reports that several factors contribute to your overall score to some degree. These include:

  • Your payment history, including what you've paid and how much 
  • Your credit utilization, which measures your credit balances in relation to your credit limits
  • The length of your credit history
  • Public records, for example monies owed from civil legal proceedings, liens, unpaid taxes, and so on
  • The number of credit inquiries on your account

What's considered a good credit score?

Your credit score is a three-digit number that represents your financial responsibility. Lenders look at this number to assess the risk of lending you money and to help determine the lending terms (such as the interest rate and the minimum payment required) of the loan, the credit line, or other credit accounts you're getting. 

Credit scores range from 300 to 900. Young people and new Canadians who haven't established their credit in Canada will start with lower scores. As you borrow money and pay it back, your score can increase. The higher the score, the better: a larger number can lower your potential interest rate for credit. If you're planning on getting a car loan any time soon, you'll want a high score up your sleeve. Combined with other information, such as your income, total debt payments, and assets, a good credit score can also make it easier to get approved for bigger loans like a mortgage on a home.

According to Equifax, credit scores in the 660 to 900 range are good, very good, or excellent.

Will a bad credit message stay on my report forever?

Bad credit on your report can lower your score. If you miss payments or make partial payments, or if there's been an error, it can leave you with a bad credit message or note. These messages can linger on your credit report — not forever, but for years. Bankruptcies and consumer proposals stay on your credit report for up to seven years from the date of discharge for your first occurrence, and even longer for subsequent bankruptcies.

If you think there's an error on your report or you have the opportunity to fix a situation that's hurting your credit, ask the lender to report it to the credit bureau. They may be able to help raise your credit sooner. 

Does everyone have a credit report?

No. Everyone will get one eventually, though, when they turn 18 and open an account that reports to the credit bureaus. (Note: these companies should notify you if they're checking your credit as well.) Having a cell phone in your own name, for example, means that you could have a credit report even if you haven't yet applied for a credit card or loan.

Who can see my score and report?

Your credit report and score is used by lenders such as banks, credit unions, and mortgage companies to help them decide whether to approve you when you apply to borrow money.

While your credit report isn't available to members of the general public, if someone has what's known as a permissible purpose, they can request your credit. This means they have a valid reason for wanting to see it. Typically, you'll see this from: 

  • Lenders
  • Collection agencies, when they're trying to collect monies owed
  • Insurance companies, for specific types of insurance applications
  • Employers, but only with your permission 
  • Rental companies, utility companies, and phone companies (but again, only with your say-so)

A credit score is a double-edged sword. While a bad one risks making it more difficult to get a loan, a good one can be a valuable tool to help you meet your financial goals. Your score is in your hands, and mulling over how to bump up your number can only mean good things for your finances.