After my divorce, while rebuilding my financial life, I decided to have a look at my credit reports and scores. I had read an article that mentioned inaccuracies in credit reports. The article had also mentioned making sure that your ex-spouses credit information was not hindering your credit rating. With that in mind, I began to research credit scores, credit reports and credit bureaus.
In Canada, we use two major credit bureaus; Equifax and TransUnion. Throughout my investigation, I joined both. I can check my credit score for free through my credit card supplier, but I joined the credit bureaus because I wanted to see my whole file, not just my credit score. In joining the credit bureaus I learned far more than I thought I would. Having a detailed look at my reports proved the article correct. My report at both bureaus was riddled with out of date, and at times inaccurate information. And so my journey into the world of credit began.
Links to the credit bureaus can be found here:
We are all entitled to one free credit report from each credit bureau per year. If you are serious about repairing your report, once a year will not be enough. It wasn’t enough for me as I’m far too impatient to wait for the following year to check on my report again, to see the changes taking effect. Joining on-line meant that I can check my report and score as often as I like.
I began by studying the ‘rules’ around credit reporting. Examples of these rules include the length of time that a record should remain on your report. I also read how each bureau accepts and deals with ‘disputes.’ A dispute is how a consumer like you and I can apply to have the information in their report changed, if it is stale or inaccurate.
I had joined the bureaus and read the rules and dispute processes, I began to file disputes to request information changes. Below are some examples of the information that I filed disputes for.
- My ex-spouse’s name was still attached to my credit report even after my divorce. I was able to have her name removed by provided a copy of my legal divorce decree with the dispute paperwork.
- An old loan was still shown as active long after they had been paid off. I requested paperwork from the bank that proved that the loan had been paid in full, and I filed that paperwork with the credit bureau. The credit bureau kept telling me to go to the financial institution that held the loan to prove that it had been paid off. The credit bureau will NOT clean up old records without proof.
- I had an old Home Depot credit card that I had closed, but the credit bureau still had it marked as active. Once again I contacted the company that had issued the credit and asked them to provide documentation that proved the status of the credit line. This had a BIG impact on my credit ratio as I was securing a mortgage. More on that later, but this is a big issue.
Disputing Inaccurate Report Information
In order to begin to clean up my credit report, I printed out a copy of my report from both bureaus and listed out the inconsistencies that I had found. Once I had assembled my proof that the entries were wrong, I opened an on-line dispute. Opening a dispute on-line only allows you to give an outline of the dispute. It also provides with a dispute number. Once you have a dispute opened and have been assigned a dispute number, you will then send in the documentation that proves that their information is wrong. I clearly outlined the information that was incorrect, added my documentation to prove what was correct and made sure that my dispute number was on all documentation.
Your dispute information package is then mailed in to the credit bureau. After that, I waited the six to eight weeks that was suggested in the dispute instructions on the bureau’s website. After eight weeks, I called the Customer Service line to ask about the status of my dispute. It took me two disputes for each credit bureau before I got my credit file to be accurate and up to date. Cleaning my credit files was one of my hobbies for half a year. It was well worth the time I spent.
Each credit bureau will maintain a credit score in your name. Your score at one bureau can be very different from your score at another bureau. Each bureau uses different algorithms to calculate your score. Learning these algorithms can be very beneficial to you. If you have a credit card that allows you to login to your account online, you can likely check your score for free through the credit card’s website. Below is picture of the free score that is provided by my credit card provider (Capital1).
Managing Your Credit Score
While I was investigating credit bureaus, I learned a few tricks for manipulating your credit score. I wanted to see if they worked, so I kept my memberships to both credit bureaus and started using the tricks I had read about. It’s easier than you might expect to trigger an up-tick in your score.
Age of your oldest account is a factor. Bureaus automatically remove any accounts that have been closed for a set amount of time. For the benefit of this article, lets consider an account to be any loan, line of credit or credit card. My oldest account is a credit card that I don’t use. It’s a $1,000 Capital1 card that I had kept for emergencies.
But it has an annual fee of $120. I was going to close that card so that I don’t have to pay the fees. But then I realized that closing that account would impact me in a negative way, as my credit history would become shorter once that card disappears. Is a longer credit history worth $120 a year? I wanted to consider all of the ramifications before making a decision.
Credit Ratio is a huge factor. This is the fun one, the one that I used to watch an immediate impact on my credit score every month. Your credit ratio works something like this; take all of your available credit and divide that by the amount of credit that you are using. That will give you the percentage of your credit that is in use. That will give you an idea of your credit ratio, but it’s a bit more complicated than that.
The ratio is built using all of your credit lines, based on their totals on the their individual invoice dates. So it isn’t calculated on any given single day, rather by adding up credit card statements as they come in. If your credit ratio is $0, your credit score will not move the way you want it to. I know that owing zero dollars is the best place to be, but your credit score will increase faster if your ratio is between 1% and 30%.
Let’s talk about a practical example. I do not have any active loans or lines of credit. I have a mortgage, but that doesn’t count for this calculation. So, my credit cards are the only factors in assessing my credit ratio. I have two credit cards; the $1,000 Capital1 that I mentioned earlier and a $9,000 Avion Infinite. My total available credit is $10,000. So, my theory was that owing anything above $0 and below $3,000 on any given month should help my credit score to increase.
To test my theory I created a process that allows me to use my credit card for monthly bill payments. But I only allocated a maximum of $1,000 per bi-weekly pay of spending to my credit card. That means that my balance will never exceed $1,000 before it gets paid off. So my credit ratio moves between 1% and 10% depending on the day. Once I put that process in motion, I began to check my credit score every month to see the effects.
While I had always been over 700, I brought my score up to over 825 using the tactic outlined above. So, my system worked. Also worth mentioning is that I tailored my available credit to make it easier to generate a favorable credit ratio within my every-day budget. My Avion credit card had higher available credit, but I asked RBC to decrease my maximum credit on that card to $9,000.I did that so that both of my cards added up to an even $10,000 in credit. With my bi-weekly budgeted spending on credit cards at $1,000 maximum, it was easy for me to hit a ratio of close to 10% consistently. This also meant that I was collecting points on my card for my regular monthly spending.
The dip that you see in the summer is what it looks like when your credit ratio gets too high. My credit card balance got higher than optimal, and so my score dipped. I was still in a good place, but it was declining. There are additional factors that impact your credit score. Even something as simple as renewing your mortgage can have an impact. When I sold my condo and bought my townhouse, my credit score took a hit because I had financed a larger amount. At times, your score can be impacted without any change to your financial situation. An example of this if you have too many inquiries.
When I shop for a car, I always ask what the payments will be, and for how many months. In order to answer that questions, dealerships have to do a “soft inquiry” which means the same as just ‘a quick check’. The credit bureau accumulates these inquiries. If you get enough inquiries, it can negatively impact your score.
Far too many of us do not consider taking a proactive approach to our credit rating, only to be caught off guard as we apply for a car loan or a mortgage. I hope that I have shown here that it takes very little time and effort to manage your credit report and score. Don’t forget that the better your credit score, the less interest that you will pay when you do apply for a loan or mortgage.