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Thousands of Ottawa residents saw their credit scores tank overnight after the city hired a private agency to collect on old fines.
The fines, some of which date back decades, include things that fall under the Provincial Offences Act, such as traffic violations and trespassing fines, as well as unpaid water bills.
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Ottawa’s deputy city treasurer, Joseph Muhuni, told CTV that the city contracted Financial Debt Recovery (FDR) to collect on the debts.
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“FDR attempted to collect the debt and to date, has subsequently reported 103,000 unpaid Provincial Offences Act fines and 3,000 unpaid water bills to the credit bureau,” he said.
Many of the impacted residents said they received no prior communication before experiencing significant drops in their credit scores. Here’s what to know.
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How is your credit score calculated?
Canada’s two major credit reporting agencies are Equifax and TransUnion. The formula varies between the two agencies but includes your payment history, amounts owed, length of credit history, new credit inquiries and types of credit used.
Each component is weighted differently when calculating your score, with payment history usually considered the most important factor.
Amounts owed also makes up a significant percentage of your overall score and revolves around how much credit you are actively using compared to the total credit you have available. Also known as your “credit utilization ratio,” lenders interpret the figure to get a read on how well you’re managing your debt. It’s recommended to keep your credit utilization ratio under 30 per cent when possible.
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The number of times you have applied for new credit also factors into your score. Longer credit histories are viewed favourably because they offer more data on your borrowing behaviour. Multiple inquiries in a short period can lower your score as lenders may interpret that as meaning you’re in financial distress.
Having a mix of credit accounts can also positively impact your score as it’s seen as evidence you can manage different payment schedules and balance requirements.
What lowers your score?
In short, missing payments. Late payments, missed payments and defaults all negatively affect your credit score.
Bankruptcies or accounts in collections can significantly drop your score, which was the case in Ottawa, where some residents saw their scores plummet by as much as 150 points overnight according to CTV.
Credit scores from 660 to 724 are considered good, 725 to 759 are considered very good and 760 and up are rated excellent, per Equifax.
Individuals with a credit score below 560 may face difficulties obtaining credit.
What specific types of payments and accounts are factored into your credit score?
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Usually fines like parking tickets don’t appear on your credit report but that changes if your municipality refers the debt to a collection agency. Once sent to collections, even library fines can potentially impact your credit score.
Utility payments, including water bills, can also affect your score if they are referred to a collection agency.
While not automatically reported to credit bureaus in Canada, rent payments can impact your credit score when reported through third-party services such as PayProp.
More often, your score is impacted by things like making credit card and loan payments on time, whether it’s personal loans, auto loans, student loans or mortgages.
If you’re on a contract for your phone, late or missed payments can also impact your score.
Can you dispute your score?
Yes. You can dispute unfamiliar fines, penalties, or debts that you believe have been reported in error.
You can also dispute cases if you did not receive prior communication before the fees were reported to the credit bureaus and you have the right to add a statement to credit reports, explaining your side of the story.
The first step is to obtain a copy of your credit report from both Equifax and TransUnion to verify the disputed items. Then contact the agency reporting the inaccurate information and formally dispute the items in question. The agency is required to investigate the dispute.
The process generally takes about six weeks but can be longer depending on the complexity and responsiveness of the creditor.
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