Understanding Your Credit File Step by Step
Before any mortgage application in Canada, it is essential to understand what your credit file contains. This document, compiled by Equifax and TransUnion, is the centrepiece of your lender's assessment. An AMF-certified mortgage broker in Quebec relies on this report to déterminé your eligibility, negotiate your rate, and select appropriate mortgage products.
Key Sections of Your Credit Report
Your credit report is divided into several distinct sections, each providing specific information to lenders. The identification section contains your personal détails: name, current and previous addresses, date of birth, social insurance number (partially masked), and current and former employers. Review this section carefully to spot any errors that could indicate identity theft or a mixed file.
- Credit accounts section: every open or closed account is listed with the creditor name, date opened, credit limit, current balance, minimum payment, and credit rating (R1 to R9 for revolving credit, I1 to I9 for instalment loans).
- Inquiries section: lists all checks made on your file. Hard inquiries (made by a lender during a credit application) affect your score, while soft inquiries (personal checks or promotional pre-approvals) have no impact.
- Public records section: includes bankruptcies, consumer proposals, judgments, and liens that are public records accessible to all lenders.
- Collections section: lists accounts sent to collection agencies, including the amount claimed and the date of transfer.
- Consumer statement section: a space where you can add a personal statement to explain a particular situation (for example, a late payment caused by illness).
Your Credit Score: The Numerical Summary
Your credit score is a number between 300 and 900 calculated by each bureau's proprietary algorithm. At Equifax, the Beacon score is the most widely used by Canadian mortgage lenders. This score weighs five main factors: payment history (approximately 35% of the score), credit utilization ratio (approximately 30%), length of credit history (approximately 15%), diversity of credit types (approximately 10%), and new credit inquiries (approximately 10%). In Canada, most A-lenders require a minimum score of 680 for the best mortgage rates.
Understanding Specific Codes and Notations
Each account on your file carries a two-character code. The first letter indicates the credit type: R for revolving (credit cards, lines of credit), I for instalment (car loan, personal loan), O for open (home equity line of credit), and M for mortgage. The number that follows indicates your payment history, from 1 (regular on-time payments) to 9 (bad debt). The notation "too new to rate" appears for recently opened accounts. AMF-certified mortgage brokers analyze these codes to assess the overall quality of your borrower profile and identify elements that may require attention before submitting your mortgage application.
- Obtain both of your reports: Order your free report from Equifax (online or by mail) and from TransUnion. Compare the two, as they may contain different information.
- Verify the identification section: Ensure your name, address, date of birth, and employer are accurate. Any error could indicate a mixed file or a case of identity fraud.
- Analyze each account: Review every listed account. Verify that balances, limits, and payment ratings match your reality. Note any account you do not recognize.
- Review the inquiries: Identify any hard inquiry you did not authorize. Unknown inquiries could signal a fraud attempt.
- Plan necessary corrections: If you spot errors, prepare your dispute file with the relevant bureau along with appropriate supporting documentation.