If you were to ask me what the single most misunderstood aspect of the Canadian financial industry is, without hesitation I would say, “The credit reporting system”.
Every adult Canadian that has been employed, operated a bank account, or ever tried to access credit has more than likely been reported to one, if not more, of the credit reporting agencies, and yet, most Canadians know little or nothing about them.
Credit Report Myths
To help you understand more about your credit report we will first look at two major myths about credit reporting:
The first myth is that credit reporting is performed by not for profits and/or a government agency. Not true. The credit reporting agencies are for profit businesses that were created to provide lenders with information that helps them determine whether or not to grant credit to individuals. They work for the lenders, not you.
The second myth is that they accurately report on all of your financial transactions. Not true – they report only what their member lenders report to them. For example, if a business is not a member of the credit reporting then your activity with that business will not be reported on your credit report. Small businesses, landlords, doctors and dentists are some examples of businesses that are not typically part of a credit reporting agency.
Once you understand myth one and myth two, you have a much better appreciate for credit reporting in Canada is all about.
Your Credit Report and Bankruptcy
One of the effects of filing for bankruptcy is the impact it may have on your credit report. Bankruptcy is designed to provide individuals with a fresh start for their finances by eliminating their unsecured debts. When you file bankruptcy the fact that you have filed is reported to the credit reporting agencies by the government (not your bankruptcy trustee). When you complete your bankruptcy the government reports that information too.
There may be debts on your credit report listed by your lenders before you filed for bankruptcy. In order from them to be removed from your credit report the lenders have to report that the debts have been dealt with by your bankruptcy. In some cases, lenders continue to report debts that have been eliminated by bankruptcy. That’s why we recommend to our clients that they obtain a copy of their credit report 3 to 6 months after they have been discharged to make certain that everything relating to the bankruptcy is being reported properly.
In the vast majority of cases, a person’s credit report is an accurate representation of their financial history with the major banks and credit granters. If you file for and are discharged from bankruptcy, these facts are correctly presented on your report. So how then, can bankruptcy be a fresh start if it appears in your credit report? The reason is that your unsecured debts are eliminated when you are discharged (ie you completed your bankruptcy). If you don’t file bankruptcy and continue to miss payments, this will appear as a negative mark on your credit report as well. By starting over, you can rebuild your credit and once you do, your past ‘history’ no longer matters.
Um . . . I came here because I thought you were going to address the issue about the FACT people had claimed bankruptcy was a black mark ITSELF on their record. Unfortunately, I found no answer to that here.
I filed for bankruptcy about fifteen years ago, and I have regained the trust of creditors since, who once again line up to offer me credit, which I pay off religiously every month. Thank the Lord. Regardless, it seems RBC NEVER forgive. I want their Avion card, as Aeroplan sucks, but I see online, that RBC have a different procedure for what they say are ‘current bankruptcies’, in which case they want one to phone to apply instead. I can’t establish what ‘current’ means exactly, but from some forums of people who have been cleared of bankruptcy for five years or so, it seems they are still being penalized, as they are refused. Again, how is a fresh start, if companies like RBC continuously hold you accountable for past debts? That’s what I would really like to know. And also, if bank records retaining, and therefore using this information to deny applicants cleared of bankruptcy over many years is even legal.
Hi Sam. That’s a great question. I would be interested in the response you get from RBC.
If you owed money to RBC when you went bankrupt, they will have it in their system, presumably forever, so even if the bankruptcy no longer appears on your credit report, they could decide not to deal with you (that surprises me, because all banks want to make money). However, without knowing what RBC’s internal policies are, I can’t tell you why they have declined you for their credit card.