The Five C's of Credit: Credit History
Welcome back to our ongoing series focussed on helping you qualify for a mortgage. In today’s post, I wanted to talk about the fourth of five C’s, your credit history. First, it is important to note that your credit history and credit score, while correlated, are different. Your credit score is an objective score assigned to your lifelong credit history. Banks don’t use your credit score to approve you for a mortgage, instead they do a subjective review of your entire credit bureau.
What’s a credit bureau?
A credit bureau is a report assigned to every Canadian who has ever had a credit product, including credit cards, loans, lines of credit, and mortgages. Your credit bureau lasts for the entirety of your life, and shows every credit product you have ever had. Moreover, for each of those products it shows how much you currently owe, what your fixed payments are, whether you pay it on time every month, and how many times you have been 30, 60, and 90 days late on a payment.
How does my credit score work?
While your credit score is based on your credit bureau, it does not tell the banks the entirety of your history. For example, if you had bad credit habits 15 years ago but have spent the last five years devoted to having good credit then your credit score may have rebounded, but just knowing your credit score would not let the bank know you had bad credit before. This is why they look at your credit bureau, and look at how you have treated credit your whole life.
Similar to the other terms we have discussed, having bad credit earlier in your life doesn’t mean your bank will automatically decline you, but they will want you to explain why your credit habits were so poor and what you have done to remedy it.
For example, a lot of people make mistakes early in their credit lives because they don’t understand how the products work. A lot of people also go through periods of financial difficulty, which sometimes lead them to miss payments. Remember, your banker won’t know the reason unless you tell them.
Over the last couple of years we’ve seen many apps and websites come on the market that will show you what your credit score is, which is great to know. However, you should also look at your credit bureau. Many credit bureaus have mistakes on them, which your credit score can mask. You can request a copy of your credit bureau from both TransUnion and Equifax anytime.
We want to be proactive in helping you build a strong credit bureau, so our next blog post will talk about be a list of best practices for you to follow in order to succeed with credit., Follow our tips them and you won’t will not need to worry about your credit bureau.
We hope this gives you a better understanding of what a credit bureau is, and how it compares with your credit score. Both are related and important, make sure you review them every year. If you have any questions about credit please feel free to drop us a line on Twitter, Facebook, or Instagram! Keep an eye out for my next post where I’ll tell you the best ways to build good credit.