A credit report (also known as a credit bureau) is a history of how consistently you pay your financial obligations. A credit report is created when you first borrow money or apply for credit. On a regular basis, the companies that lend money or issue credit cards to you (banks, finance companies, credit unions, retailers, etc.) send the credit reporting agencies specific and factual information about their financial relationship with you - when you opened up your account, if you make your payments on time, if you miss a payment, or if you have gone over your credit limit.

There are two major credit reporting agencies in Canada - Equifax and TransUnion. Both companies receive this information directly from the financial and retail institutions and retain it to help other lenders make decisions about granting you credit.

Because your credit report contains all the information received from your lenders and provides a picture of your financial health, other lenders will request your report when they are determining whether or not to grant you a loan. Your credit report is a history that will help them determine what kind of lending risk you are - if you are likely to repay your obligation on time or not.
What is a credit score?

A credit score is a statistical formula that translates personal information from your credit report and other sources into a three-digit score between 300 and 900 – higher the score, better the credit rating. For example, when you fill out a loan application, pieces of information from the application along with information from your credit report will be used to compute a score that indicates to the lender the statistical probability that you will become delinquent on the loan.

The following is what is used to calculate your credit score:

Payment history - Indicates whether you have made your credit card payments, loan payments and other payments on time
Amounts owed - Compares how much you owe to your credit limits with various lenders
Length of time in file - Indicates how long you have had credit accounts
New credit - Shows how often you are looking for new credit and how you handle accounts you have recently opened
Type of credit - Considers the type of loans you have - car loans, lines of credit, credit card balances
It is important to understand that a credit score is only one criterion that a lender will use in making decisions.

How can I improve my credit score?

Pay all of your bills on time. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.

Try not to run your balances up to your credit limit. Keeping your account balances below 30% of your available credit may also help your score.

Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask you why. However, most scoring formulas will not penalize you if, for example, you are shopping for the best mortgage rate or the best car loan.

In Canada, there are two main credit bureaus

Equifax 1-800-465-7166
Trans Union 1-800-888-4213