Your number's up
Curious about your credit rating? You should be

An exclusive group of corporations, decades old and unaccountable to the public, is currently gathering information on you, information that could seriously affect your quality of life in years to come. Sound like a job for Mulder and Scully? Nope, these credit reporting agencies are very real and the only person who can investigate how their information will affect you is your self.

Just as paper money replaced the gold standard, credit and debit cards are becoming the common currency of our increasingly 'wired' world. Who does or does not gain access to such credit - and who knows about all of it - is becoming a significant issue. The Public Interest Advocacy Centre, a watchdog charity based in Ottawa, recently published a report entitled Consumer Reporting and Privacy: The Need for Better Consumer Protection. It urges credit reporting agencies to be more open about their practices and for Canadian consumers to start asking questions. "It's time that consumers were given more control over their own credit reports," says researcher Angie Barrados, "and that credit reporting agencies explain to consumers how and why they collect, use and disclose our personal information."

Part of that can be answered right here. Why they collect personal information is simple - there's money in it. Credit reporting agencies, or credit bureaus, keep the cash rolling in by collecting information about consumers' transactions and money habits and selling it to businesses who want to know which people are a safe bet to trust, businesses like insurance companies, landlords, employers, etc. These clients pay an annual fee as well as a payment for each credit report they request.

As for the 'how' - credit bureaus get that information from the credit applications you fill out, from public records such as bankruptcies or repossessions, and from files sent to them monthly from credit card companies and collection agencies. If you were late with a payment last month, the credit bureaus will know about it and your relationship with them will be measured according to the following nine-point scale (a scale we the public tend to refer to as our "credit rating"):

0
A blank slate, a fresh start - you've got credit but haven't used it

1
They like you, they really like you - you pay as agreed with 30 days of getting a bill

2
You've disappointed them - you pay late but within 60 days, one payment past due

3
The love is gone - you're almost 90 days overdue, two payments behind

4
You're officially a deadbeat - three or more payments past due

5
You're on your last legs - over 4 months overdue, but not yet rated the dreaded 9

6
The silent treatment - this rating is apparently never used (hey, no one said it had to make sense…)

7
It's over but maybe they'll take you back - you've made arrangements under some kind of agreement or consolidation order (more on this in a minute…)

8
It's over and they're taking back their stuff - it's repossession time!

9
You're evil and they're coming to get you - your bad debt is placed with a collection agency

As you can see, they're fickle, these companies - they love you enough to make you the subject of your very own file but you'll be in the doghouse fast once you've made a few mistakes. "A lot of people think that if you skip a payment, then make two payments, you're fine," says Laurie Campbell, "but it shows a sketchy history." Campbell is the Program Manager for the Credit Counseling Service of Metropolitan Toronto, just one of a network of such non-profit agencies across Canada that aims to help people understand and solve credit concerns. What they do is necessary because the stakes are high - even a 3 rating, Campbell says, "could affect your ability to get further credit or even to rent an apartment."

The idea that such decisions could be totally arbitrary is frightening for anyone keeping the wolves from the door and, fortunately, the credit bureaus agree. The quest for objective standards in deciding who gets credit and who doesn't led to a new and controversial wrinkle: the credit score. Developed in 1959 but only used widely in recent years, the credit score is a statistical rundown of you as a financial being. Encompassing your credit history and rating, your income, your debt load and numerous other factors, it is essentially a computer prediction of whether or not you'll pay the credit back. After all your personal information is processed, a final score ranging from 400 to 900 is produced. The higher your credit score, the less likely you'll be to default on a loan. It's necessary, says Sheila McCracken, VP of Credit Reporting at Equifax, one of two credit bureaus in Canada. Credit ratings alone, she says, "don't show overall debt to income - if you've maxed out your credit cards, if your debt is almost equal to your income. These are warning signs to creditors that you're overextended."

Fortunately, there's a flip side to this - by objectively examining factors other than your credit rating, computerized credit scoring can sometimes grant approval even if you're history has been rocky. Also, a good credit history can make loan approval a snap - a computer score could get you a home loan in hours instead of the standard 30-45 days usually required for approval. According to First Manhattan Funding Inc., "credit scoring is not something to be intimidated by or confused about. If you are trustworthy, dependable, and accountable for your debts, credit scoring can and should be your friend."

But a friend no one knows they have - credit scoring is controversial because, according to the PIAC report, "the current practice is to keep secret that credit scoring has been used in a transaction. The scores and the models used to determine them should be disclosed to consumers." This is hardly a conspiracy, argues McCracken - credit scores are complex, filled with information that the average consumer would neither understand or benefit from. They don't publicize them because "consumers typically don't ask about the scores." While this sounds like circular logic, she points out that "the main thing is to know what's in your file" and "know that you can have that file updated or adjusted." Signing a rental lease, she says, is "not the time to find out about some dispute you had with a store."

Meanwhile, Equifax's Director of Communications Johanna Schueller adds that the company is currently revamping their website, www.equifax.ca, to include more information for consumers, including an online credit score service. She concedes that "people are becoming more savvy" and that allegations of secrecy are "partly the industry's fault" for focusing on the needs of business and not seeing this trend earlier. She refutes the PAIC report's claims concerning a lack of standards, however, insisting that "Equifax has had standard practices for years."

That's reassuring to hear, though cold comfort to the Number 9's who've lost their favour. What can you do to protect your own credit rating? Unfortunately, the only secure method of establishing or keeping a good credit rating is the old-fashioned way: be good. Don't overspend and pay your bills on time. Dull, yes, but still the best way to avoid all these perils. If you're starting out (or starting again), you may have trouble getting a major credit card to establish credit in the first place - try applying for a store card first. Most major chains are hungry for a credit consumer base and every morning, I half-expect to find a Bay card at the bottom of my cereal box. Be extremely careful though - while that new aubergine eatons card may look smart in your wallet, it's like most store cards in that it has an interest rate of over 25%! And while most major cards allow you to carry an unpaid balance from month to month (so long as you make those monthly payments, of course), they're not doing you a favour - even lower interest rates will add up very, very fast. Simply remember: credit cards are the agents of Satan - seductive and damning.

If it's too late and you have fallen into Hell, consider a debt consolidation program with the Credit Counseling Service -- it will immediately boost you to a 7 rating and possibly lower your monthly payments - but avoid any companies that promise to "clean up" or "erase" your bad credit and give you a fresh start. While this certainly sounds attractive, there's no law requiring a credit bureau to remove negative but accurate information before the legal time is up.

I worry aloud to Laurie Campbell that I'm being too hard on all these credit people; is the power they wield fair? "It's a tough call," she says - while publicizing credit scoring "would be helpful," she reminds that "a credit history is there for a reason. Do future creditors have the right to know? Yes, of course they do." It may be sad, she says, but "nowadays, your word just isn't good enough." But while credit bureaus may not trust the public, people are starting to ask if we should trust the credit bureaus. Looks like Mulder and Scully had the right idea. Reporting agencies have been watching us for a long while - it's time to return the favour.


Information on your credit files at Canada's two major credit bureaus can be found at:
Equifax 1-800-465-7166
Trans Union 1-800-663-9980
Credit Counseling Canada can be reached at 1-800-267-2272 for information on services in your area