Credit checks explained

A credit check is a routine part of qualifying for a mortgage. If you don't have a good credit history, getting financing for your home can be a challenge.

Here's how a credit check works:
Your personal credit history is compiled by credit bureaus, which create a credit report by collecting information from banks, retailers and other public records. The report generally goes back 6 or 7 years, and shows your credit and debit cards, bank accounts, personal loans, mortgages, etc. It shows creditors' names, account numbers, current balances - and a detailed payment history. The report will also show public information like marriage, divorce, liens, judgments that have been entered against you, bankruptcy, etc.

The lender uses the credit report to determine whether they will lend you money. If they have concerns about something in the report, the lender will ask you for an explanation.

The lender will also use the report to verify other information on your mortgage application, like employment status and address (including the name of your landlord and perhaps rental payment history). They will also be able to see inquiries made by other creditors over the period of the report. (This information can be useful to a lender to show what other avenues of financing you might have tried and may raise questions about why another creditor declined to lend it to you.)

Honesty is the best policy
If you think there might be any credit problems, tell the lender up front and ask about their policies before you apply. There's no point in trying to hide something that will show up in your credit history. Get a copy of your credit report before you apply for a mortgage - you may be able to avoid surprises and possible delays.

Take a look at your credit report
Because the report contains information about you, you have a right to see a copy of it. Equifax, one of Canada's largest credit bureaus, will mail consumers a free copy of their personal credit file on request. For more information, call Equifax at 1-800-465-7166.

If you disagree with something in your credit history, you have the right to challenge it and ask that the information be corrected. For example, perhaps the report shows that you were over 90 days late paying a bill but does not indicate that you withheld payment pending a settlement of a dispute with the creditor. Or perhaps you were late with a particular payment because you were away. Whatever the explanation, contact the credit bureau to clarify the matter.