Credit Reports vs. Credit Scores
Credit information is gathered by credit reporting agencies, sometimes called credit bureaus. There are two major credit reporting agencies in Canada: Equifax and TransUnion.
Your credit report is a detailed record of your borrowing history. The major sections in your credit report include:
- Personal Information – name, address, date of birth and Social Insurance Number
- Consumer Statement – where you, as the consumer, can add a brief comment about any information in your report
- Credit History – details of your credit accounts and transactions and shows if payments are being made on time
- Banking Information – limited information on your bank activity, such as NSF cheque history
- Public Records – information about secured loans, bankruptcies and/or judgments
- Third-Party Collections – information about any involvement with a collection agency trying to collect on a debt
- Inquiries – A list of organizations or individuals that have requested a copy of your credit report in the past three years
Your credit score is a three-digit number calculated using information from your credit report. It is designed to help lenders quickly assess risk — not to help you manage your money.
Think of it this way:
Your credit report tells the story.
Your credit score is just one summary of that story.
This distinction matters because rebuilding credit is about improving the story, not chasing the number.
Understanding Credit Ratings (R1-R9)
On your credit report in Canada, each creditor assigns you a credit rating on a scale from 1 to 9. R1 is the best credit rating and R9 is the worst. Here are their meanings:
R1 – You pay that creditor’s loan on time.
R2 – Your payments are 30 days late.
R3 – Your payments are 60 days late.
R4 – Your payments are 90 days late.
R5 – Your payments are 120 days late.
R6 – Typically not used.
R7 – You are in a consumer proposal, consolidation order, or debt management plan (offered through a non-profit credit counselor).
R8 – It is used to show that a secured creditor has taken steps to realize on their security (e.g. repossessed your car). It rarely appears on a credit bureau report because once a vehicle is repossessed, the remaining debt is usually sent to collections and reported as R9.
R9 – A bad debt placed for collection or considered uncollectible, or you are bankrupt.
As you can see, you could have different credit ratings at one time, based on how you handle different debts.
How Does A Consumer Proposal or Bankruptcy Affect My Credit Rating?
As soon as you file a consumer proposal, your credit rating will be revised to either an R7. In most cases, a consumer proposal remains on your credit report for three years after completion, or six years from the date it was filed, whichever comes first.
A first bankruptcy will show up as an R9 on your credit report for a period of six to seven years from the date of discharge, depending on the credit bureau’s policy. A second bankruptcy remains longer.
What Credit Score Do I Need?
Both TransUnion and Equifax use a credit scoring system which gives you a number between 300 and 900. How both report these numbers differs slightly, however the higher your score the more likely you will be to qualify for credit at a good rate.
| Equifax | TransUnion |
| 300-560 = Poor | 300-599 = Very Poor |
| 560-659 = Fair | 600-699 = Poor |
| 660-724 = Good | 700-749 = Fair |
| 729-759 = Very Good | 750-800 = Good |
| 760-900 = Excellent | 801-900 = Very Good |
It is not, however, necessary to chase the highest score. Perhaps all you want is an unsecured credit card for daily use (which you will now pay off every month). If this is the case, you will need to achieve a score above 560 (600 for TransUnion). Achieving this objective can happen very quickly, without needing to work hard to build a better credit score.
Other things to know about your credit score:
- It is up to each lender to decide on the lowest score you can have and still borrow money from them.
- Lenders may also use your score to set your interest rate and credit limit.
- Since 2008 the federal government requires you have a minimum credit score of 600 to qualify for mortgage insurance.
- In Ontario, and some other provinces, insurers may use credit scores underwriting your home insurance, which may affect your premium, but it’s illegal to use credit scores for underwriting auto insurance.
While they are very important, credit scores are usually not the only thing a lender will look at. Often, they will also consider other factors, such as your income, job or any assets you own when underwriting your credit application.
Getting a Mortgage After Insolvency
It is possible to qualify for a mortgage after insolvency, but lenders will look for evidence of stability over time, not just a minimum credit score.
While requirements vary by lender, most traditional mortgage lenders are generally looking for the following:
Time Since Insolvency
Most lenders want to see that at least two years have passed since you completed your bankruptcy or consumer proposal. This allows time for new credit history to be established and demonstrates financial recovery.
Re-Established Credit History
Lenders typically expect to see:
- Two NEW credit accounts (established after your insolvency)
- A history of on-time payments on those accounts
- Credit limits that demonstrate you can manage more than minimal credit responsibly
This is sometimes referred to as the “2-2-3” guideline: two years since completion, two active accounts, and credit limits of at least $3,000 on each account.
What Affects Your Credit Score?
A credit score is a three-digit number that is calculated using a mathematical formula based on the information in your credit report.
- You get points for actions that demonstrate to lenders that you can use credit responsibly.
- You lose points for things that show you have difficulty managing credit.
Each credit bureau has a different formula for calculating credit scores and they do not disclose what the formula is. There are, however, five main factors that affect your credit score:
- Payment history is the most heavily weighted factor when calculating your credit score. Paying bills on time will improve your score. Late payments, missed payments, accounts in collection and bankruptcy will reduce your credit score. These negative items are removed over time and so it is possible to improve your credit score even after filing bankruptcy or a consumer proposal.
- Credit utilization, how much you owe as a percentage of your credit limit, is the second biggest factor but is something you can take control of right away. Reducing your balances owing will have a positive impact on your credit score. Maxing out your credit cards will lower your credit score. In general, a good credit score means a utilization rate for all loans of 30% or less.
- Length of credit history affects your score because it can show that you are a reliable borrower. If you have filed bankruptcy or a consumer proposal, you will in effect be starting over and will need to show that you have been able to manage credit wisely for a while in order to improve your credit score.
- The types of credit. Credit bureaus look for a healthy mix of accounts between revolving credit (like credit cards and lines of credit) and term loans (like car loans). You can begin to rebuild your credit with something like a secured credit card. However, you will need to add other types of longer term loans to achieve a very good credit score. In addition, having too many of one type of account can also be bad. If you have a car loan and 10 credit cards, this indicates to the credit bureaus that you may be mismanaging your credit, which can drive down your credit score.
- The number of credit inquiries will also impact your credit score. When lenders ask for a copy of your credit report, it is called an inquiry. Applying for a loan is considered normal, but if you apply for several new loans or re-apply multiple times after being turned down for a loan it provides the credit bureau with a signal that you are a bad credit risk. Applying for loans, having an employer, utility company or landlord ask for your credit report are considered ‘hard’ hits or enquiries that will impact your credit score. Requesting your own credit report, or lenders seeking a copy to update their records, are considered ‘soft’ hits and do not impact your credit score.
Other factors that can have a negative impact on your credit score:
- Moving recently and / or frequently. If you are moving temporarily (say for school or work), consider using a family member’s address as a permanent address.
- Changing jobs or employers often.
What Matters Most When Rebuilding
Whether you are looking at your credit report or thinking about your score, two principles matter more than anything else:
Accuracy
Your credit report must reflect the truth. Errors are common, especially after insolvency, and fixing them is a critical first step.
Behaviour Over Time
Repairing credit involves more than applying for and being approved for new loans. You must also show that you can now responsibly handle that credit if you want to improve and maintain a good credit score.
- Always pay bills on time
- Set up automated payments
- Keep utilization rates low (well below your credit limit)
- Pay balances in full every month
- Don’t apply for credit too often
- Borrow only what you need.
Most importantly: Consider credit cards a method of payment, not a way to finance your lifestyle.
With this foundation in place, you’re ready to learn the steps to rebuilding credit after insolvency.