Credit Monitoring

The basics of credit monitoring

In today's world, many things depend on your credit-loan approvals, insurance premiums, even the success of job applications. While checking your credit report is always a good idea, monitoring your credit year-round can be equally important.

What is credit monitoring?

A credit monitoring service acts as both a personal assistant and a watchdog when it comes to your credit. TransUnion's credit monitoring service gives you frequent access to your credit history, so you can check your credit report as often as you like. It monitors your credit file and alerts you to key changes such as a new account opened in your name or negative information like a late payment reported by one of your creditors. Credit monitoring keeps you informed, helps you stay on track and is a great way to maintain a healthy credit score.

Credit monitoring can help alert you to identity theft

When identity thieves strike, they usually have your name, Social Insurance Number, and sometimes a credit card number. With this information, imposters can apply for credit cards, rent an apartment, take out a car loan and even open new bank accounts in your name. Most victims don't realize they've been compromised until they review their credit report or credit card statements, and by then, it may be too late.

Using a credit monitoring service can help alleviate the headaches that come with trying to restore your identity after it's been stolen. Credit monitoring helps you act immediately whenever anything suspicious occurs.

Credit Cards

Building up your credit is an important step toward total financial health. Having a clean credit history may help you secure an increase in your credit card limit or negotiate a lower interest rate on a new car or home loan.

What types of credit cards are there?

Banks, credit card companies, stores, gas stations and even phone companies offer credit cards. Standard credit cards usually have no fee or a low annual fee. Some of the benefits of a standard credit card include convenience, security, the ability to extend payments over time, low interest on balance transfers, cash back, savings on purchases and loyalty points — and of course, the ability to build a good credit history over time. Premium credit cards charge higher annual fees and may offer more valuable rewards programs, access to airport lounges, insurance benefits and a broad range of other benefits. With rewards cards, you earn points based on the amount you spend, provided your payment history is up to date.

Should I have a specialty credit card?

Specialty cards, such as business or student cards, are designed for people with very specific credit needs. These cards have many of the standard features — low introductory rates, cash back and airline rewards — but also include specific benefits that may not be valuable to you. For example, a business card might have features for increased credit limits, employee cards and tools for keeping personal and business expenses separate. Credit card issuers design student cards to help students build credit for the future. These cards often have minimal rewards, but are convenient, have low or no annual fee and if managed well, build a solid credit history.

Can I qualify for a credit card if I have bad credit?

Secured credit cards are for people who need to establish credit, repair their poor credit histories and rebuild their credit. In general, secured cards require collateral or prepayment, offer low credit limits and may charge annual or other fees.

Mortgage

Home sweet home: buying can be trying

Your new home purchase is a milestone in your journey toward security, stability and independence. TransUnion can help you avoid unwanted setbacks as you move to close the deal.

How does my credit score affect my mortgage rate and eligibility?

Your credit score can directly affect the mortgage interest rate a lender offers. Basically, higher credit scores can lower the interest rate, while lower scores may cause them to rise.

If I already have a high credit score, what else can I do to lower my mortgage rates?

Choose a shorter amortization period if you can handle a higher monthly payment. For example, a 15-year term instead of a 25-year loan will not only reduce your interest rate, it will cut the total interest you pay over the term of the mortgage. Short-term and variable rate mortgages are less risky for lenders, so they offer lower interest rates. But remember, short term and variable interest rate mortgages are risky for you if interest rates rise. That's why many people want the security of a "locked-in" longer term interest rate.

Can I get a mortgage with a low credit score?

Typically, if your credit score is less than 600 or even 650 in some circumstances, getting approved for a mortgage that you can afford, may be a challenge. Each lender has its own formula for determining the level of risk they will assume when evaluating your mortgage application, so it is difficult to provide a one size fits all answer. There are also companies that specialize in mortgages for purchasers with weak credit histories, who may charge a higher interest rate or insist on a higher down payment. As each purchaser's situation is different, you should speak with a range of potential lenders and choose the one that best meets your needs.

What other mortgage-related costs do I need to consider?

Down Payment Rules

In Canada, federal mortgage rules that came into effect on February 15, 2016, require larger down payments for higher priced properties. For houses under $500,000, the minimum down payment is 5%. For higher priced homes, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.

Mortgage loan insurance (MLI)

In Canada, lenders require mortgage loan insurance when your down payment is less than 20% of the purchase price. There are a few companies that offer mortgage loan insurance. Your potential lender will provide the information you need. Mortgage loan insurance protects lenders against mortgage default, and enables you to purchase homes with a minimum down payment starting at 5% — with interest rates comparable to those with a 20% down payment.

Your mortgage loan insurance premium is a percentage of the mortgage amount and is influenced by a number of factors such as whether you will occupy or rent the property, whether the loan is to purchase the property, for construction on the property, if you are refinancing, and the size of your down payment. The more you borrow, the higher the premium — but usually the cost is offset by the amount you save in the interest rate on your mortgage.

Other Closing Costs

Once you've settled on a down payment, it's important to take stock of your closing costs. These can vary by city and province, and can include land transfer taxes, a realtor's commission, HST and lawyer's fees.

Credit Score

What is a credit score?

A credit score is an objective summary of the information contained in your credit report at a particular point in time.

If you have any credit accounts, such as credit cards, mortgage or loans, you likely have a credit report. Your credit report is a record of how you manage your credit obligations. This data is then distilled and calculated to create your credit score.

Your credit score is a number that lenders may use to help them decide whether or not to extend you credit. It represents the risk related to whether or not they can expect you to repay, according to the agreement you sign with them.

Credit scores can give lenders a quick, objective and impartial snapshot of a credit file and are helpful in making approval decisions.

How is my credit score calculated?

The score is a three-digit number that lenders use to help them make decisions. Lenders use scores to determine whether or not to grant credit, and if so, how much credit and at what rate. A higher score indicates that the individual is a lower credit risk.

To calculate a score, numerical weights are placed on different aspects of your credit file and a mathematical formula is used to arrive at a final credit score. TransUnion calculates your credit score based on many factors in your credit history and payment behaviour, including but not limited to:

• Your track record for repaying your loans and credit card balances
• How much money you currently owe on your credit accounts
• How long your accounts have been open
• The different types of credit you use or credit mix
• How much credit you use compared to the amount of credit you have available
• How often, and how recently you have applied for credit

While the overall purpose of credit scores is universal, each lender will use his or her own criteria to measure an individual's credit worthiness.

It can be confusing when your score seems high but you are denied credit. Chances are you're not looking at the same score as your bank or finance company or they had other contributing factors involved in their decision, such as previous history with the institution. Subscribers don't always work with both credit reporting agencies in Canada, so the information included in one report might be slightly different from the other. Some lenders also use their own internal credit scores when evaluating an application. The only way to find out about how they measure your creditworthiness is to ask the individual lender.

What is a good score?

Typically, the higher the score the better. Each lender decides which credit score range it considers a good or poor credit risk. The lender is your best source of information about how your credit score relates to their final credit decision. Your credit score is only one component of the information that lenders use to evaluate credit risks.

What affects my credit score the most?

Your payment history is typically the most important aspect of your credit score. It shows how you've managed your finances. Your credit history is also very important, as it demonstrates how long you've been managing your accounts, when you made your last payments, and any recent charges.

What is my credit mix?

Your credit mix refers to the different types of credit you hold, such as credit cards, lines of credit and mortgages. In addition to your credit mix, the number of accounts you have also influences your credit score.

Will I be penalized for shopping around for the best interest rate?

A common misconception is that every inquiry decreases your credit score. This is not true. While an inquiry is recorded on your personal credit report every time you, one of your creditors or a potential creditor obtains your credit report, the presence of inquiries has only a small impact on your credit score. Many types of inquiries (such as employment, collection, insurance, rental, your inquiry into your own file and account review inquiries) have absolutely no impact.

Most scoring models take appropriate steps to avoid lowering your score because of multiple inquiries that might occur as you shop for the best car or home loan terms.

Understanding Your Credit Score

Determining your score is more complicated than just weighing the different aspects of your credit history. The credit scoring process involves comparing your information to other borrowers that are similar to you. This process considers a tremendous amount of information, and the result is your three-digit credit score number.

Remember, no one has just one credit score, because financial institutions use several scoring methods. For some credit scores, the amount you owe might have a larger impact on your score than payment history.

View all of your credit reports annually to help ensure the information is accurate. You may also want to use a credit monitoring service year-round. TransUnion offers some of the latest and most innovative credit monitoring services, to help you spot inaccuracies, potential fraud and other blemishes that could lead to higher interest rates.

Which personal details do not affect my credit score?

Your score is a representation of how you manage financial responsibility, not a testament to you as an individual. Things like age, ethnicity, religion, marital status, salary, occupation, and employer information are not factors in the calculation of your score.

How does an inquiry made by an insurance company impact my credit score?

It doesn't. An inquiry made by an insurance company is considered a non-credit related inquiry or "soft" inquiry.

How do I build a good credit history?

A credit reporting agency needs a track record of how you've managed credit before it can calculate a credit score. Typically, six months' worth of activity will provide enough information to generate a score. Your score is dynamic and may rise or fall over time, based on how consistently and promptly you pay your bills.

Establishing a good credit history takes time. Each creditor has different requirements for issuing credit. If you are declined credit, contact the lender to determine the reasons why.

Start with a local store or a secured loan

If you have steady income and have used the same mailing address for at least one year, you may wish to apply for credit with a local business or department store, or for a secured loan or credit card through a financial institution. Paying credit obligations on time will help you develop a good credit history and may enable you to obtain additional credit in the future.

Consider a co-signer

If you have problems establishing credit, you may wish to ask a person with established credit to co-sign an application for you. This allows the creditor to base the decision on both of your credit histories. But remember, your co-signer is equally responsible for repayment of the debt. Both parties' credit reports will reflect the payment history on this type of debt. Once you have proven that you are able to make timely payments, you may wish to apply for credit on your own.

How can I improve my credit score?

Several factors affect your credit score including payment history, amounts you owe, utilization of available credit, length of credit history, new credit and types of credit you use. Here are some tips on how to improve your credit score:

Be punctual

Pay all your bills on time. Late payments, collections and bankruptcies have the greatest negative effect on your credit score.

Check your credit report regularly

Take the necessary steps to remove inaccuracies — Don't let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report, contact the creditor associated with the account or the credit reporting agencies to correct it as soon as possible.

Watch your debt

Keep your account balances below 35% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the outstanding balance below $350.

Give yourself time

Time is one of the most significant factors to improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit file open to lengthen your period of active credit use.

Identity Theft and Fraud

What is identity theft?

Identity theft is a serious crime where your personal information — anything from your name, driver's license, or Social Insurance Number — has been compromised by an imposter who intends to commit fraud in your name. With your Social Insurance Number, someone can easily obtain false lines of credit and rack up significant debt in your name. With a stolen identity, someone might hide behind your name in a legal matter, leaving you with a false criminal record. Identity fraud is a major problem, and it happens more often than you might think.

How do I know if I'm a victim of identity theft?

Signs of fraud vary but typical indicators include:

• One of your creditors informs you that they have received an application for credit with your name, address and/or Social Insurance Number
• Credit cards or banks inform you that they have approved or declined your application — and you never applied
• You no longer receive your credit card statements in the mail
• Your credit card statement includes unusual purchases
• A collection agency contacts you to collect on your defaulted account, when you never opened that account

Getting your credit report from TransUnion is an effective way to help you detect identity fraud. You can review your report for signs of suspicious activity, such as accounts that you don't recognize, or inquiries from companies with which you've never done business. These could be signs that someone is applying for credit in your name. It's best to catch it early. While you can't always prevent identity theft, you can be proactive and minimize the damage.

What should I do if I'm victim of credit fraud?

If you suspect that someone has stolen your identity, there are several things you need to do:

• Report the incident to the police, especially if it involves stolen identification. Insist on receiving a complaint number.
• The Canadian Anti-Fraud Centre provides valuable information and guidance.
• Report all stolen credit cards to the issuers and request new cards. Follow up with written notification.
• Notify your bank if your cheques were stolen and close your account.
• Be prepared to fill out Affidavits of forgery to establish your innocence for banks, credit grantors and recipients of stolen cheques. Remember, these institutions are joint victims with you and may suffer a financial loss.
• If you believe someone else used your Social Insurance Number, you should contact your local Service Canada Office for advice.
• Get a new bank card, account number and password. Do not reuse your old password. Never share your password or and Personal Identification Numbers ("PIN") numbers.
• Notify Canada Post Postal Security if you suspect your mail was stolen.
• Contact TransUnion's Fraud Victim Assistance Department and Equifax Canada. The companies will add fraud alerts to your credit files. TransUnion's Fraud Victim Assistance Department offers a seven-step program for protecting and assisting all victims of credit fraud.

What are some tips for avoiding fraud?

One of the best ways to detect fraud is to subscribe to monthly monitoring and/or request your credit report at least once a year from both major consumer reporting agencies to check for unauthorized activity and resolve issues quickly.

There are also several simple things you can do to significantly reduce your chances of becoming a victim of fraud:

• Do not keep extra credit cards, Social Insurance Card, birth certificate or passport with you unless completely necessary.
• Advise creditors of address changes and redirect your mail to the new address.
• Install a lockable mailbox at your residence to reduce mail theft.
• Unfortunately, family members can be the perpetrators of fraud. Avoid giving your family members access to your accounts.
• Take credit/debit and ATM card receipts with you. Never toss them in a public trash container and shred them before discarding.
• Never leave your purse or wallet unattended or in open view in your car, even if you have locked the doors.
• Destroy all cheques immediately after you close a chequing account. Keep courtesy cheques that your bank or credit card company sends in a secure place.
• Destroy the courtesy cheques if you do not plan on using them.
• Tell your bank that you will pick up your new cheques at the branch rather than having them mailed to your home address.
• Reconcile your cheque and credit card statements regularly and challenge any purchases you did not make.
• Limit the number of credit cards you have and cancel inactive accounts.
• Do not give credit card, bank or Social Insurance Number information to anyone by telephone, even if you made the call, until you can verify that the call is legitimate.
• Do not allow an institution to use your Social Insurance Number as an identifier for your account.
• Try to keep your chequing, saving or credit card account separate from your line of credit. If a fraudster gains access to your line of credit account, the losses could be severe.
• Scrutinize your utility and subscription bills to ensure the charges are yours.
• Memorize your passwords and Personal Identification Numbers (PIN) so you do not have to write them down. Be aware of your surroundings to ensure no-one is watching you input your PIN. Never share your password or Personal Identification Numbers ("PIN") numbers.
• Avoid easily identifiable PINs (e.g. date of birth).
• Keep a list of all your credit and bank accounts in a secure place so you can quickly call the issuers to inform them about missing or stolen cards. Your list should include account numbers, expiration dates and customer service and fraud department telephone numbers.
• Do not toss pre-approved credit offers, credit card or utility bills in your trash or recycling bin without first tearing them into small pieces or shredding them.
• Avoid any offer that sounds too good to be true — they are often scams. Be very sceptical of offers that require your Social Insurance Number, credit or financial information as an enrolment condition, especially if you did not seek out the product or service.

Debt and Money Management

Build a budget

Creating and sticking to a budget will help your long-term financial health. Start listing your income and expenses and then compare the totals. If your total expenses are higher than your total income — you're spending above your means. If you can't increase your income quickly to cover your expenses and save for a rainy day, you will need to reduce your spending. Your budgeting goal is to always have income higher than expenses.

Reduce your debtUse credit wisely and sparingly. To reduce your debt, build a debt repayment or reduction strategy. Some people suggest that you should aim to repay the debt with the highest interest rates first. Others suggest that you should list all your debts starting from the smallest to largest, and start repaying them, beginning with the smallest and working your way up. That way, you will have some small "wins" early on, which should motivate you to keep going. You should also consider managing the interest rate on your outstanding balances by transferring balances from high interest credit cards to lower interest rate lines of credit. No matter which strategy you use (or consider trying all three), committing to a consistent debt reduction program will improve your financial health.

Add a credit monitoring service

Credit monitoring services help you secure the credit you've worked so hard to build. Think of it like a night watchman, looking out for the presence of unauthorized activity in your credit corridor. It monitors your credit file and alerts you to key changes such as a new account opened in your name or negative information like a late payment reported by one of your creditors. Credit monitoring keeps you informed, helps you stay on track and is a great way to maintain a healthy credit score.

Create an emergency fund

Having an emergency fund provides security and peace of mind knowing that you'll have money in your account in the event of job loss, health issues or other unexpected events. Your goal should be to have enough money in your emergency fund to cover six to eight months of expenses. Start by trying to save 10% from each paycheque.

Prepare for the future

If you want to protect your children and other beneficiaries from future financial hardship, you need a plan. You can start by taking out life insurance, opening a retirement account and, if applicable, creating an education savings plan.

Have fun

Put aside a portion of your income for guilt-free spending. If you sacrifice too much on your mission for good financial health, you risk relapsing and spending the money you've worked so hard to save. Make it a point to treat yourself occasionally. Try opening a "fun fund," an account you use for special weekend trips, nights out with friends or a big-ticket purchase.