What is a Credit Bureau and How Does it Work?

You hear a lot about them, but have you ever wondered, what is a credit bureau? Who are these mysterious agencies that seem to operate in a shroud of secrecy? If you’ve applied for credit cards or checked your credit report in the past, you’re probably familiar with the big two: Equifax and TransUnion. But what is it that they exactly do, how do they do it, and how does it impact you? Read on to find out!

What is a Credit Bureau?

The official credit bureau definition, according to Merriam-Webster, is “a private business that compiles information on consumers’ creditworthiness and provides this information to lenders.” Pretty straightforward, right?

Credit bureaus, or credit reporting agencies, operate independently and tend not to share information with one another, which is why your Equifax score may be different from your TransUnion score. Some credit card companies and financial issuers will use consumer information from both, while others choose one or the other. 

What Does a Credit Bureau Do?

Credit bureaus compile information from lenders like banks, credit card issuers, and collection agencies—and they do it as soon as you open your first credit account. They also look at public records that can contain information about bankruptcy, tax liens, foreclosure, and repossession. All this adds up to one number—your credit score.

What is a Credit Score?

Your creditworthiness is based on five main factors that determine your credit score, which is a number between 300-900. (The higher your credit score is, the better.) And each factor is weighted differently as a percentage of your total score:

• Bill payment history (35%). A record of on-time and missed payments, and debts in collection. (Credit bureaus only collect information, not money, so there's no such thing as credit bureau collections.)
• Credit utilization (30%). How much of your available credit you've used up. Utilizing less than 30% of your available credit is ideal.
• Age of your credit history (15%). The older the better, as credit bureaus can use this as a predictor of your spending behaviours.
• Credit mix (10%). Diversity in the different types of credit you have, such as revolving credit (i.e., credit cards), installment loans (e.g., auto loans), and mortgages. Having different types of credit in good standing demonstrates you can handle a variety of debt and credit products.
• Number of inquiries (10%). This shows how much credit you’ve applied for recently; many inquiries in a short period of time sends up red flags that you may be in financial trouble.

For more on credit score calculations, check out our post on credit reporting, Understanding Canadian Credit Scores.

Credit Bureau Laws

Most Canadian provinces have credit reporting legislation outlining the practices credit bureaus must follow in order to protect consumers’ rights. This also includes any agencies requesting the information credit bureaus collect. The most basic requirements are:

• Requestors must have a permissible purpose. Acceptable requests include credit decision, debt collections, employment or tenancy decisions, and insurance underwriting. 
• Requestors must advise consumers if they obtained information in order to take an adverse action. Adverse actions include denying a credit or employment application and increasing lender fees/charges.
• Bureaus must provide consumers a copy of their credit report upon their request. Requesting your report does not constitute an inquiry and therefore doesn't affect your credit score.
• Bureaus must investigate any items on the report the consumer disputes. If the investigation turns up an error, the credit bureau must report this to anyone who received your credit file within a specified time frame (this varies by province).
• Bureaus must maintain positive credit information for 20 years. This benefits consumers by recognizing their positive history, even if more recent information is negative in nature.

How to Get Your Credit Report From a Canada Credit Bureau

It's a good idea to check your credit report at least once a year to spot early signs of fraud or identity theft, to make sure you aren’t being penalized for debts that aren’t yours or debts that you’ve already paid off, and just to keep tabs on your overall credit health. You can do this by contacting Canada's two national credit bureaus, Equifax Canada at 1.800.465.7166 and TransUnion Canada by calling 1.800.663.9980. It's a good idea to check both, as information can be different between bureaus. You can get both the score and report for free.

Have Questions About Your Credit Report?

After obtaining a copy of your credit report, you may have questions about it—or need help improving it! You can book a free Credit Building Counselling session with Credit Canada for the help you need. We will review your credit report with you, get your credit score, and discuss any questions you might have. Just call 1.800.267.2272 to book your free session. Our certified Credit Counsellors can also give you advice on how to improve your credit score, or rebuild your credit. All of our counselling is completely free and confidential, so let’s boost that score together!