Credit checks are used to look at your credit score and/or credit report, which are generated by credit bureaus. Landlords and lenders typically use this data to determine if they will approve you for a loan or line of credit. The information gathered centres around personal information and credit history but does not include your income.
What Information Is Shown on Your Credit Report?
Credit reporting agencies will include key information on your credit report to create a personal profile used to calculate your credit score. Here’s what information is included in your credit report.
Personal Information
Your credit report includes personal information as a way to identify you. Personal information includes your name, date of birth, social security number (SSN), phone number, and current and previous addresses. Additionally, your current employment status, as well as your employer and occupation, are included. Sometimes, a consumer statement is also included per the individual’s request.
Accounts
A variety of accounts will show up on your credit report, including credit cards, mortgages, and loans, encompassing both closed and open accounts. The account type, account history, status, and current balance are some of the several details found on your credit report. In addition, if any accounts have been passed onto a collection agency, those will also appear on your credit report.
Inquiries
Inquiries, or credit checks, are requests from companies to view your credit report and are added to your report when they occur. Typically, checks come from lenders, landlords, and other companies, which are usually hard pulls. Other times they are soft inquiries that can be used for pre-approval or self-checking your score. Hard credit pulls are a detailed look into your credit score and will temporarily drop your score because it indicates you are applying for credit. On the other hand, soft pulls do not lower your score and only provide a restricted look at your credit report.
Public Records
The public records included on your account are only records pertinent to your financial profile. If there are any records, these will be things like bankruptcy, judgements (debt/payments owed due to court rulings), consumer proposals, and credit counselling history.
What Information Does Not Appear on Your Credit Report?
Although your credit report includes an immense amount of detail, it will not include irrelevant data, such as:
Your income/salary- Your salary does not reflect your ability to pay back your debt, but banks and landlords may ask for this information to use in their decision-making process.
Medical information - Your medical information is private and unrelated to whether or not you will pay back your debt.
Outdated information - Most data only remains on your report for seven years, in some cases, ten years.
Credit Report vs. Credit Score
Your credit report and credit score are related; however, there are key differences between the two. In short, your credit score is a number that represents your ability to pay back debt and can be used by landlords or credit card companies for pre-approval.
On the other hand, your credit report is a detailed look at your credit history, and it is generated and used by credit bureaus to calculate your credit score. They contain personal information like your name and contact information, as well as information regarding any credit accounts, inquiries, and public records related to your credit history.
Another difference is that credit scores have to be calculated and are made up of the following:
Credit checks (10%) - These are requests to view your credit report, but only hard pulls affect your score.
Credit mix (10%) - Your credit mix is the combination of your different lines of credit, like loans and credit cards. A blend of different accounts can increase your score if you can properly manage all of them.
Credit history (15%) - The length of time you have used credit. The longer your credit history, the more reliable you appear.
Credit utilization (30%) - The utilization rate is the percentage of credit you use out of your total credit limit. As a golden rule, try to keep your credit utilization under 10%, so you do not appear reliant on credit.
Payment history (35%) - This looks at whether or not you make your payments on time and your consistency. Since this makes up the biggest part of your score, it is paramount that you regularly make your payments in full and on time.
Does Income Affect Credit Score?
According to a 2021 survey from Equifax Canada, more than half of respondents believed that higher salaries resulted in better credit scores. However, as mentioned previously, your income is not included on your credit report, so it does not directly impact your score.
That said, it may affect how you manage your credit. A high income may make it easier to manage monthly payments from a credit card because excess income can cover the additional costs. Likewise, low income may indicate credit risk because there is less financial leeway. Regardless of income, people’s financial habits differ tremendously. As such, an individual’s income is an inaccurate way to determine one’s ability to pay back debt.
Additionally, landlords take your income into account in addition to your credit score. As a secondary precaution, landlords usually ask that tenants make a combined total of three times the rent of the space, but this number will vary by location. This helps ensure that even with unexpected expenses, a tenant will be able to pay their rent. The same principle may be applied by an individual.
The Bottom Line
Whether you are an employer, car dealer, landlord, or individual, credit checks play a vital role in understanding your credit status. Your credit score is a quick representation of the likelihood you will repay your debt. A more detailed look at your credit history can be found on your credit report, which contains personal information, accounts, inquiries, and, if applicable, public records. Although lenders may ask for your income, it is not included in your report.
