Dealingwith

Dealing

CreditCreditwith

Reality Choices11

Making decisions in a changing consumer marketplace

Reality ChoicesMaking decisions in a changing consumer marketplace

Dealing with

Credit

Dealing with Credit

Do you know you have a credit rating?

If you are between 18 and 30 years old, you have likely already faced some hurdles in the financialworld — maybe you didn’t have all of the information you needed or you just weren’t aware of theobstacles. To avoid going into debt, or to find ways to get out of debt, read the following information.It will give you a general understanding about the pros and cons of credit.

Your credit history or credit rating startsfrom day one — the first time you get acredit card in your name, a loan or lineof credit from a bank, or even asubscription to a CD or video club.Virtually everyone has a credit history.

Credit reporting agencies are in thebusiness of gathering credit informationto establish your credit history and yourcredit worthiness. When you ask for aloan, apply for a credit card, or evenwant to rent a place to live, the potentiallender or landlord, as a member of acredit reporting agency, may buy creditinformation about you. There are twomain credit reporting agencies inCanada: Equifax Canada Inc. and TransUnion of Canada. These private agenciescollect information about borrowersfrom other credit grantors.

What’s in my credit file? Although the information allowed in afile may differ depending on where youlive in Canada, you will generally findthe following in your file:

� Identifying information — name,address and date of birth (there is nolegal requirement to provide yoursocial insurance number).

� Employment history — company, jobtitle, length of employment andincome.

� Credit status — late payments, currentoutstanding debt, available credit andpayment history on existing debt.

� Public information — any of yourfinancial affairs that are on the publicrecord, including bankruptcies,judgements against you and unpaidtaxes.

� A list of those who have made creditinquiries about you.

Your home province or territory mayhave credit-reporting laws.

What should not be in my credit file? Again, provincial or territorial laws maylimit the kinds of information that areon your file, but generally, the followinginformation should not appear:

� Information about race, colour,religion, health or health care history,or criminal charges not resulting inconviction.

� Negative credit information if it isbeyond limitation periods.

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Reality ChoicesMaking decisions in a changing consumer marketplace

Dealing with

Credit

To get copies of your credit report, senda letter to both agencies with your fullname, current address, former address,date of birth and daytime telephonenumber with a copy of two pieces ofsigned identification.

Equifax Canada Inc.Box 190, Jean Talon StationMontréal QC H1S 2Z2

Toll-free: 1-800-465-7166Tel.: (514) 493-2314Fax: (514) 355-8502

Web site: http://www.equifax.ca

For all provinces except Quebec:

Trans Union of CanadaConsumer Relations CentreP.O. Box 338, LCD 1Hamilton ON L8L 7W2

Toll-free: 1-800-663-9980Tel.: (905) 525-0262

For Quebec residents:

Trans Union (Echo Group)Suite 2001600 Henri Bourassa Boul. OuestMontréal QC H3M 3E2

Toll-free: 1-877-713-3393Tel.: (514) 335-0374

Web site: http://www.tuc.ca

Reviewing your file� You have a legal right to see your

credit file.

� Credit reporting is regulatedprovincially or territorially.

� Check your credit file for errors,and for positive information thatis missing (such as a successfulrepayment).

Correcting your fileIf you find information on your file thatyou disagree with, you have the right toexplain or protest. Your first contact isEquifax or Trans Union.

If you find an error, contact yourprovincial or territorial consumer affairsagency and ask them what you need todo to correct it. Errors can includesomeone else’s information on your file;debts listed that aren’t yours; debts listedthat have been paid in full; and incorrectpayment history.

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Reality ChoicesMaking decisions in a changing consumer marketplace

Dealing with

Credit

Trouble signsYou know you have a debt problemwhen you:

� frequently pay bills after their due date;

� bounce cheques regularly;

� use an advance from one credit cardto pay the minimum amount onanother card;

� receive a call from a collection agency;

� regularly ask friends or familyfor loans;

� have your utilities cut off fornon-payment.

No money down, easy credit terms, rentto own, interest payments that don’t startfor six months, credit cards in everypocket — it’s very easy to get into debt.So before you sign up, think about howmuch debt you can afford. Think twicebefore using credit cards or other loansthat will result in debt to extend yoursalary/income or your lifestyle. Creditproblems now will stay with you forseveral years and could affect yourfuture plans.

Or, perhaps you don’t really need short-term credit such as credit cards and linesof credit. You can save what you wouldbe paying in interest for other things.

“I buy when I have the money, orwhen I know I can honour thepayments on time.”

Credit cards Credit cards can be convenient thingsand are even necessary for somepurchases, such as those made on-line.But convenience can have a price —credit cards can have a significant impacton your budget when you don’t pay thebalance in full when it’s due.

The next time you get a credit card bill,check out the annual interest rate foroverdue accounts. It may be way overwhat financial institutions ask you topay on loans or lines of credit. Creditcard rates typically range from 9 percentto 29 percent. Shop around for the bestcard. If you’re not paying off your creditcard bills monthly, you may be payinghigh interest charges.

If you are going to use a creditcard, find out which one is thebest for you by using IndustryCanada’s free Credit Card Costs Calculator(http://consumer.ic.gc.ca).Choosing the right credit cardbased on your own spending and paying habits can save you a lot of money. Cards varytremendously in their interestrates and suitability forindividual consumers.

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How to manage debt

Reality ChoicesMaking decisions in a changing consumer marketplace

Dealing with

Credit

Credit card tips

� Save money by paying cash insteadwhenever possible.

� Know how much you’re paying ininterest, and shop around for the bestrate.

� Pay your credit card debt in full whenit is due because interest mounts upfast.

� Keep the number of cards you haveunder control — the fewer the better.

� A low credit limit will force you to usediscipline. Ask a financial institution tolower your limit. If you shop on theInternet, a low credit limit might be agood idea anyway, because it can limitthe damage if your credit card numbergoes astray.

� Credit cards offer some protection, andif yours is lost or stolen you areresponsible for a maximum of $50 thatanyone else may put on your card. Aswell, the financial institution thatissued your card may stand betweenyou and the merchant if somethinggoes wrong.

� A line of credit, usually at a lower rateof interest, may be helpful in paying offcredit card debt.

If it sounds too goodto be true...

What about those “no interest for sixmonths” ads? Read the fine print. If youdon’t pay off the entire bill within the sixmonths, you’ll probably find that theinterest clock started ticking the momentyou made the purchase.

Similarly, rent-to-own schemes may costmuch more than other ways of paying,such as with cash, a bank loan or yourcredit card, even if their monthlypayments seem small.

Debit cardsUsing a debit card is like using cash: youmay pay a transaction fee, but as long asyou have money in your account youwon’t have to pay interest. However,there are things to consider when gettinga debit card:

� In many cases your financial institutionmay not send you a detailed report ofyour purchases. This can make recordkeeping confusing and difficult. Theresult: it’s harder to keep on top ofthings. Your record keeping needs tobe very accurate.

� Ask your financial institution to sendyou a detailed monthly report of yourpurchases. See if you can receive itat a student rate or at the lowestpossible cost.

� Your debit card might be attached to aline of credit, which makes it very easyto overspend — and costly too.

� If something goes wrong — say,someone gets your card and personalidentification number (PIN), andmakes a fraudulent purchase orwithdrawal — you’ll probably losethe money, with no recourse. If yourdebit card is attached to a line ofcredit, the thief could clean outyour line of credit too.

� If you have a debit card, keep yourPIN and card in separate places.

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Reality ChoicesMaking decisions in a changing consumer marketplace

Dealing with

Credit

Remember the trouble signs. If you canrelate to one or more of them, it’s timeto stop and reorganize your finances.Take action before creditors starttaking action.

Your first step is to gather all yourinformation: income, expenses, debts,and which debts are secured and bywhat means. You need to know exactlywhat you’re up against.

Many jurisdictions have not-for-profitcredit counselling services that willreview your financial situation with youand suggest options. They may be ableto organize a creditor-approved debtrepayment program. Some of theseservice providers may charge a smalluser fee.

Visit http://www.canlaw.com/credit/counselling.htm for a list of provincial and territorial non-governmental creditcouncelling organizations.

If a not-for-profit credit counsellingservice is not available in your area, lookfor a credit counselling business thatcharges a small fee. Ask what they willprovide for the fee, and if you can seea sample of what they can do for you.If you have questions, contact yourprovincial or territorial consumeraffairs agency.

Other options:

� Talk to your creditors and try toreschedule your payments.

� Consider a debt consolidation loan.Interest rates are typically set at theprime rate plus a percentagedetermined by the lender, whichis usually less than a credit card rate.You may need a cosigner or othersecurity, or both.

Loan brokersConsumers may turn to loan brokerswho often advertise in the classifiedsections of newspapers and ontelevision. Loan brokers may chargefees in addition to interest. Mostjurisdictions’ cost of borrowinglegislation would consider these feesto form part of the interest rate, whichmay not exceed 60 percent as allowedunder the Criminal Code.

Advance fee loan brokersSome loan brokers charge advance fees to obtain or provide a loan for aconsumer. Advance fee loan brokers alsooften advertise in the classified sectionsof newspapers and on Internet sites.

It is illegal in some jurisdictions tocharge a fee, whether it’s called a“deposit,” “insurance” or just an“administrative fee” to borrowers beforethey get the money. Some borrowershave been known to send fees rangingfrom $200 to $1500 to companiesand never received their loan. Theyended up with even less money towork with.

Other potential sourcesof moneyYou may encounter variousunconventional businesses that offer tohelp you in your time of financial need.These may include: storefront loanoffices, cheque cashing services, and thelike. These are often more expensivethan other alternatives. Most likely,you’ll be charged a high interest rateand/or high fees. Consider other options.You may be better off with a loan or line of credit.

Credit repair companiesCredit repair companies claim to act on consumers’ behalf to improve theircredit file — fast — but for a fee. Thisfee is often as high as $1500. In reality,no credit repair company has the powerto change or erase accurate informationin a consumer’s credit file — informationsuch as a history of late payments. Theonly way to improve a poor credit ratingis to work with your creditors and showthat your payment habits have improved.

The Perils of cosigningBe cautious if someone asks you tocosign a credit contract. Cosigningcarries serious obligations. You arepromising a financial institution that youwill pay off the loan if the other personis unable to do so. Could you reallyafford to pay the entire amount yourself?

Review your friend’s or relative’sposition. There is probably a goodreason why the financial institutionrequires a cosigner. You’ll probablydiscover the applicant is not a goodcredit risk in their eyes.

If the person doesn’t keep up payments,the outcome could be a court judgementagainst you for the amount of the debtowing. This could affect your creditrecord and your own budget.

I’m in over my head. Where do I go for help?

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Bankruptcy should be the lastalternative if you cannot meet yourfinancial responsibilities throughaffordable payments over a specificperiod of time. Bankruptcy is a seriousstep with many consequences and itmay not be the solution to yourdifficulties in trying to manage yourfinances. When you declare bankruptcy,your property minus any exemptionsunder provincial or territorial law isgiven to a trustee, who then sells it anddistributes the resulting money amongyour creditors. With certain exceptions,you are no longer responsible for anydebts you have accumulated.

Immediate effects ofbankruptcy� Certain debts are erased entirely:

credit card, medical and utility bills, etc.

� Other debts remain: child support,alimony payments, etc.

� Student loans less than 10 years oldare not discharged in bankruptcy.

� You must give up assets that are notexempt under provincial or territoriallaw, which could include personalitems and furnishings. You may beable to keep your car if you can proveyou need it for work. Laws differ ineach jurisdiction. Be careful to checkwhat is exempt for you.

� Unsecured creditors can no longertake legal steps to recover your debts.They can no longer threaten actionagainst you.

� To declare bankruptcy, you must pay a filing fee as well as a fee to theadministrator who handles thebankruptcy.

Future effects of bankruptcy� Any future credit you obtain may be

more expensive.

� You may have trouble getting bonded,a requirement for certain jobs.

� Your bankruptcy remains on yourcredit file for a number of years,depending on your jurisdiction.

� Bankruptcy may result in negativeconsequences in other areas of yourlife including the attitudes of yourfamily, friends and community.

For more information, go to IndustryCanada’s Office of the Superintendentof Bankruptcy Canada Web site(http://osb-bsf.ic.gc.ca), or contact thenearest Office of the Superintendent ofBankruptcy Canada or your provincialor territorial consumer affairs agency(in the Government listings of yourtelephone directory).

Reality ChoicesMaking decisions in a changing consumer marketplace

Dealing with

Credit

A word about bankruptcy

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Aussi offert en français sous le titreÀ vous de choisir : Comment prendrede bonnes décisions dans un marché en constante évolution — Le crédit.

Cat. No. RG23-96/2002EISBN: 0-662-31865-X

G O V E R N M E N T S I N V O LV E D I N T H I S P R O J E C T I N C L U D E :

CONSUMER PROTECTION is an important goal for federal,

provincial and territorial governments in Canada. In the spirit

of cooperation, and to improve efficiency on the consumer front,

the Consumer Measures Committee (CMC) was created under

Chapter Eight of the Agreement on Internal Trade. This agreement

is designed to provide a framework for federal, provincial and territorial

governments working together in the area of trade within Canada.

CMC, which has a representative from the federal government and every

province and territory, provides a forum for national cooperation to improve

the marketplace for Canadian consumers by harmonizing laws and providing

information. Consumer information targeted to young Canadians between

the ages of 18 and 30 is important as these consumers are faced with

first-time choices in a complex and changing marketplace.