Lies your credit report tells

It's bad enough having to correct the crazy stories your mother tells about you, not to mention the neighbourhood rumours that get started by that über-competitive, cookie-baking rhymes-with-stitch down the street.

But what happens when you go to the bank to apply for a mortgage or a line of credit only to find out that you've been declined because the credit bureau has declared you as an unfit borrower on the basis of an unpaid loan you never even had? OK, now it's go time.

A few years ago, CBC's Marketplace television show did an investigation that asked 100 Canadians to review their credit reports for any errors. More than 40 of those people found mistakes in their files — and 13 of them were serious enough to negatively affect their credit-worthiness.

The increasing occurrence of identity theft is also a very compelling reason to check your credit report annually. If you spot charge accounts you never opened, or rejections for credit cards you never applied for, someone out there may be using your information for fraudulent purposes.

How they rate you

Your credit report tracks all the details of any credit-related activity you have done over the past six years. This means any mortgages, credit cards, department store cards, car loans, personal loans or lines of credit that you have opened or even applied for and been declined on. It includes information on the size of your loans and accounts, whether you have made your payments on time, what your credit limits are and lists any institutions that have done credit checks on you.

Your credit score is a calculation done by the credit bureau, using the information in your report. They come to a numeric conclusion — a number between 300-900. The higher the number, the better your credit-worthiness. According to statistics, only 27 per cent of Canadians have a score between 750-799. Since only two per cent of people in this group will potentially default on a loan, they are very likely to get credit approval.

What are they saying about you?

In Canada, there are two main credit bureaus: TransUnion Canada and Equifax Canada. Both have websites where you can order a copy of your own credit report for review, in one of two ways. You can access an electronic version of your report for a fee, giving you instant access, or order a hard copy by mail, which is free. You can also request your credit score, which is obtainable for an extra fee.

Righting the wrongs

Once you've reviewed your report, if you spot a mistake, you must contact the credit bureau to have it changed. Each of the bureaus offer forms for reporting errors, which you can send in by mail or submit online. You should also include any back-up paperwork that proves your claim.  The credit bureau will then contact the institution in question. For example, if your report says you took out two loans at a bank in 2007, but you know very well that is a duplicate record of a single loan, at your prompting the credit bureau will contact that bank to confirm and then correct your file.

If the credit bureau makes changes to your file as a result of your corrections, they will send you an updated report. They will also clear your name by sending the corrected information to any institution that has looked at your file over the previous two months.

The credit bureaus will also clean out your file by removing any old information. Depending on which province you live in and the nature of the activity — they will keep records for up to seven years. For example, credit transactions are kept for six years in all provinces, while a bankruptcy may be recorded for six or seven years. Check to make sure that any sins of your past are cleared from your record on a timely basis, now that you are on the financial straight-and-narrow (right?).

If you're not satisfied with the result of the credit bureau's activities, you can contact the Consumer Affairs department of your provincial government. The federal government also offers tips and helpful information on the Financial Consumer Agency of Canada website.

If it's true, it's true

While you have the right to add a personal statement to your credit file — explaining your side of the story on anything you think doesn't look too good — you can't erase the past (at least not for several years). The only way to improve a poor credit rating is the old fashioned way — paying your bills on time, staying within the limits of your credit and basically, being a model of good financial behaviour!