A pizza shop owner was being audited by Revenue Canada. The owner asked, “What’s wrong? Why am I being audited?” The auditor replied, “You’ve got two trips to Europe down as business expenses. What’s your explanation?” The pizza shop owner replied, “We deliver!”
In business, not everything is as it first appears. Often, there is a reasonable explanation, if only one will take the time to investigate. However, time is rarely a commodity in abundance, and most people don’t have the motivation to look carefully before making a decision.
We live in a world where people are used to instant results, so if it isn’t readily apparent, the answer is generally “no.” That can be a terrible problem for any business owner trying for credit. Getting money to finance your business is often based on your personal credit history, more so than on your business’ record of payments.
Generally, lenders look to the business owner as a guarantor or as the primary borrower, so your personal credit report becomes an important part of the viewed and borrowed loan. Do you know what’s on your credit report? Have you ever looked? Do you know why it’s important to check it periodically?
The information contained in those files has a value, but often, that information is filed by people who are less concerned with accuracy than they are with tomorrow’s weather. They don’t get paid for accuracy, and when it comes to your information, that can really hurt you!
There are several credit bureaus, the most familiar being Equifax and TransUnion. These companies basically maintain a database, which is a record of reports made by credit grantors on the payment history of individuals. The report itself starts the first time you apply for credit, get a credit card, buy something on an installment plan, or when you pledge an asset as security for a loan. From that point on, they’re keeping tabs on you!
The credit grantor, who pays a fee every time they access your records, also reports to the credit bureau on your payment behaviour. The report itself is not that complicated, but a few misplaced numbers can turn your financial life upside down.
The reports are free and you can access them by going to the offices of either credit bureau, or sending a written request by mail or fax, or paying for instant access by going online. These bureaus don’t charge for this service, so they really discourage you from attending to get a copy of your report because there’s no money in it for them. That’s why they love the internet. You just log onto their site, give them your credit card number, and for a fee, you can print a copy of your report that they’re supposed to provide to you for free!
Although the information in the report is all about you, it’s really not for you – it’s for credit grantors so they can assess your credit worthiness based on past performance. The report itself isn’t really that hard to decipher. The first page lists your tombstone information such as name, social insurance number, birth date, address, employment, date the file was opened, your occupation, marital status – basically information in order to identify you.
The next section lists enquiries. This is where it can get troublesome. You see, if you have a few enquiries on your report, that’s fine, but if you have many enquiries on your report, that’s bad! Credit grantors will assume you’ve been shopping for credit, and you’ve either been refused or your racking up a pile of unsecured debt, which is a signal that you’re not using credit wisely. In other words, something’s wrong.
Why are there so many enquiries on your report? The answer can be as simple as “mortgage broker.” Typically, when engaging a mortgage broker, that broker will shop your deal around to many different financial institutions who will each request a copy of your credit report, as part of their due diligence in evaluating your mortgage or loan request. All of a sudden, there are ten enquiries on your report from different credit grantors, so it looks like you’re applying for credit all over the place!
Now if you go to several mortgage brokers at the same time, or within a short time frame, then this process is multiplied, so your report may have numerous enquiries from the same financial institutions! That’s really bad. The next time you apply for a credit card, you’re declined, and you don’t know why.
The meat and potatoes of the credit report is the credit history or banking information. This is the section that lists information received about you from credit grantors. The reporting bureau doesn’t care about accuracy. They only report what they’re told.
Generally it’s unsecured creditors that will report, like credit cards or car loans or installment loans on big-ticket items. There’s a number system that indicates you’re up to date – i.e. a number one; then number two to indicate one month in arrears, number three to indicate two months in arrears, and so on, until you get to number nine! Number nine is the dreaded “write off.”
If a credit grantor sees a number nine, fuggedaboutit. You’re done. They don’t like to see number nine. That means they’ve done everything short of flogging you to try to recover the amount outstanding, and they’ve decided to write off the account, which means you’re no good. You may be a wonderful person, but they don’t care. You may not even have incurred the debt. Perhaps you co-signed a loan for your idiot brother-in-law and he hasn’t paid it back responsibly? They don’t care. You’re now tagged with the dreaded nine!
The next section indicates Public Records and other information – basically any security registered against you which secures the debt, or judgements filed against you by someone trying to collect money. Maybe there was a small claims court action against you for $100 that you chose to ignore? Well, if the plaintiff got a judgement against you for the hundred bucks, it’s there and it’s not good.
Collection agencies employed by credit grantors to collect on errant accounts will advise the credit bureau to make a note on your file which other credit grantors will see, it’s something like “Enquiry Alert” or under the heading “Collections.” Although the headings sound onerous, they don’t mean anything – and they may be entirely erroneous, but they’re there and they can definitely hurt you.
How can you protect yourself against this? How can you defend yourself against these unnecessary impediments to your financial well being?
You can start by looking at your credit bureau report once in a while. Get a copy online (pay for it), or get it for free from Equifax or TransUnion. Look at it. If there is any incorrect information, inform the credit bureau. They give you a form that you can fill in with the details and you should provide them supporting documentation to correct the report.
Next, when you apply for a loan, do it in person. Have a copy of your credit report handy, so you’re looking at the same thing the loan manager is looking at. Why should you be at a disadvantage? Now that you’re looking at the same thing, you can explain the errors and put any derogatory information in perspective. According to the advice on https://www.kiwicash.co.nz/guaranteed-payday-loans.html, this is the right way to go. It shows you are proactive and have all your paperwork ready and transparent.
Maybe you forgot to pay that old 407 toll charge when your son took your car and didn’t have the transponder. You never saw the bill because your son was going to pay for it, but forgot to do that before he left for university in another city.
Months go by, the invoice gets sent to a collections agency, and the next thing you know there is an “Enquiry Alert” on your file! Or maybe your wife forgot to pay that old Zellers account which happens to be a joint credit card. You never use it, she rarely uses it, now it shows up as an R9 because you didn’t pay fifteen bucks for the toilet paper she picked up six months ago!
As you can see, it doesn’t take much – and all of a sudden your impeccable payment history is trashed and your business line of credit is reduced or declined entirely.
We live in an age of information. Most of it is rarely, if ever, reviewed for accuracy. There’s just no time to verify everything, so it’s your responsibility to be aware, to be forewarned and to make a little effort to ensure that the playing field is level. It’s not that tough. It only takes a mild effort to ensure that you avoid the anger and frustration that can bite you when you least expect it.