Historical article note: This article was originally published on 2018-03-19. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
Recently, I participated in a financial radio program on Canadian Chinese Radio (Fairchild Radio/FM889) every Wednesday morning at 9:40 to discuss the financial knowledge of Chinese people in Canada about establishing and maintaining credit records, managing household debt, and applying for home loans. As the content of the program on establishing and maintaining credit records is completed, let me summarize in words the cognitive mistakes that Chinese people often make when it comes to credit records.
A credit history report is a report that records the repayment of all Canadians’ debts. By accessing this report, institutions that approve and issue credit instruments (credit cards, car loans, home loans) can understand whether the applicant has a good history of repaying debts in the past. In addition, some companies or individuals who need to know the integrity of consumers can also access credit records after authorization, such as landlords, employers, etc. The credit record report contains the consumer's natural information, such as name, birthday, address, SIN number, employer information, etc., as well as credit product and usage information, for example, Bank A's credit card limit is 3,000 per month, the balance is 500, and there has never been a record of overdue repayment, etc. Information about the history of credit record accesses is also included in the report, as well as public information such as collections, defendants, and bankruptcies. Other information about consumers, such as which bank to open an account in, how much deposit they have, what kind of car they drive, and other non-credit-related information cannot be found on the credit record report.
The parties involved in credit records include: 1) credit bureaus, such as Equifax and Transunion, which are mainly organizations that save and record credit-related information; 2) member institutions of credit bureaus, such as banks, car loan companies, and credit card companies; 3) and consumers. The personal information provided by consumers when opening a bank account will be reported by the bank to the credit reporting agency for record; the bank will also report information about the consumer's failure to repay the debt to the credit reporting agency for record; consumers changing jobs, changing addresses, etc. are also summarized to the credit reporting agency through the member agencies of the credit reporting agency. Therefore, if a consumer finds an error in his credit record, he needs to report it to the credit bureau, but if he wants to correct it, he needs to find out which member of the credit bureau reported the wrong information. For example, which bank provided the wrong information to the credit bureau, and he needs to start from the record of the member agency. Every wrong has its owner, and every debt has its owner. If there is an error in the information on your credit record, you must find the source and make corrections.
Credit score is a score given by FICO based on each person's use of credit tools. This score can generally reflect a consumer's debt management situation. The scoring method is confidential, so consumers can only speculate based on experience to what extent which behaviors affect their scores. Canada's consumer protection organization FCAC released a report Understanding your credit report and credit score to guide consumers to understand the general scoring rules. When a consumer gets their first credit product, for example, when they are approved for their first credit card, their credit score is out of 900, and as misuse occurs, the score gets lower and lower. Things that affect your credit score are divided into 5 categories. The categories and weights are as follows: payment history affects 35%; debt amount affects 30%; length of credit history affects 15%; type of credit instrument affects 10%; frequent credit records affect 10%. Obviously, the first 3 items affect 80% of your credit score.
First of all, the quality of your repayment history has the greatest impact on your credit score. A credit card with a limit of 10,000 yuan and a consumption of 3,000 yuan will receive a statement at the end of the month. The bill issuance date is March 1st and the payment deadline is March 30th. The amount payable is 3,000 yuan. If the minimum payment is 90 yuan, it will not be a default. If the payment is not made before March 30 or the payment amount is less than 90 yuan, it will be considered a default on the current debt. Note that payment of the minimum payment amount within the time specified in the bill is considered a payment as promised. If it is a revolving credit instrument, the rating of this credit instrument for the current period is R1. If the payment is made within 30 days after the due date, that is, the payment is made within 59 days of the bill issuance, the rating of this credit instrument becomes R2. Ratings of R1-R2 are satisfactory ratings. A loan that is overdue for 60-120 days is classified as R3-R4, which is a minor breach of contract. The worst credit is R9, which is the most serious default, for example, being called by a debt collection company. In Canadian life, Chinese friends are best at repaying their debts on time. Very few people often have multiple late payments on several credit instruments. Please give this a thumbs up. The only misunderstanding about payment records is: when using credit instruments, such as credit cards, to purchase products or services, if a dispute arises, the payment must be repaid first and then the dispute resolved. For example, if you buy an incorrect product, you will be unable to get a refund or return, or you will refuse to pay off your credit card debt, resulting in a bad credit record. When shopping with a credit card, the merchant has already collected the payment from the credit card issuer. If the cardholder does not pay, he or she will not pay the credit card issuer. The correct way to deal with it is to pay the credit card bill as promised when receiving the bill. For disputed transactions, perform a charge back through the card issuer and ask the merchant for the disputed payment. This approach will damage the merchant's goodwill, not the consumer's own credit. In addition, disputes such as the failure to return or exchange some wireless or limited communication equipment as promised when renting some wireless or limited communication equipment; disputes such as management fees owed by tenants of shared apartments to the apartment management company have left indelible reminder records on many friends’ credit records. Remember, as long as you consume first and pay later, you must pay first and then resolve the transaction dispute, otherwise your credit record will be stained.
The impact of the amount of debt does not mean that the more debt you owe, the lower your credit score will be. Borrowing a mortgage of 100,000 yuan will have the same impact on your credit history as borrowing 1 million yuan as long as you don't repay it on time. The amount owed here refers to the ratio between the frequently used amount and the recyclable credit limit. If you have a credit card with a limit of 10,000 yuan, the maximum monthly usage should not exceed 3,500 yuan. If it exceeds 35%, points will be deducted. The same goes for credit lines. The misunderstanding of the Chinese is: use credit cards with high rebates and reward points for 90% of the limit, thinking that it will be fine to pay it off at the end of the month. In fact, this is not the case. It is recommended that everyone use each credit card equally, and use each card for 35% of the limit every month before switching to other cards for consumption.
Some friends find that their credit scores are inexplicably very low. The reason may be that they canceled a certain credit product with the longest history. I recently looked at the credit report of a young man. His score was only 680, but he had no record of debt collection and his credit card repayment record was also very good. The only abnormal thing is that I currently only have one credit card, which I applied for 1 year ago, and the credit card I applied for 5 years ago was canceled this year. In this case, the applicant only has one year of credit history and therefore has a lower credit score. Chinese friends are not clear about this. The credit card with the longest history that has not been used for a long time is usually canceled. In fact, it has a great negative impact on the credit history.
In practice, the type of credit instrument has little impact on credit history and scores. Some people only have credit cards and have a very high credit score; some people have credit cards, car loans, student loans, mortgages, and personal lines of credit, and they don’t see a higher credit score. On the contrary, if any credit instrument is not managed well, it will lead to bad records. In this regard, Chinese friends do not pursue the practice of applying for various credit tools in order to improve their credit scores.
"Frequently checking your credit record will affect your credit score" is interpreted in the Chinese community as "Every time you check your credit record, your credit score will decrease." Some people also asked me how many points I would lose after checking my credit record. There are also people who deliberately spread false information in the Chinese community, for example, "find a loan broker to get a loan, adjust your credit record report, and you can send it to several banks to apply for a mortgage without affecting your credit score." The actual situation is that consumers can apply for mortgage loans multiple times from different banks in order to inquire about interest rates. Similar credit record inquiries within 14 days will be automatically merged into one, without affecting the credit score.
Correctly understanding Canada's credit reporting system, developing good debt management habits, clarifying false rumors and making full use of your rights will be of great benefit to everyone's life in Canada.