Managing Credit Accounts and Finances for a Loved One

Highlights:

  • Plan ahead, if you can, in the case of an aging parent

  • Know what legal options may exist

  • You can place an identity alert on your loved one's credit reports

It's no secret that the population is aging. In 2019, an estimated 6.5 million Canadians are over the age of 65, compared with 5.7 million in 2015, according to Statistics Canada.

As people age, they may find themselves needing help managing their financial accounts. If you need to help assume responsibility for a loved one's finances and credit accounts, here are some steps you may want to consider -- both before and after a need arises -- to help better protect them from fraud or identity theft.

Plan ahead if possible

If your parent or family member is approaching an age where they may soon need assistance with their finances and credit accounts, you might suggest he or she add a trusted relative or friend to their credit or bank accounts. This may be especially important if he or she is in the early stages of a progressive disease involving memory loss. If it becomes necessary, the designated person can help pay bills on time, make timely deposits and withdrawals, monitor account balances, and stay vigilant in checking for signs of fraud or identity theft.

Why it’s important: If your parent or other loved one is unable – or becomes unable -- to manage their credit accounts and finances, and you haven’t been able to plan ahead, you may need to piece together their financial and credit situation yourself. In addition, they could pile up unnecessary debt; miss credit card or bill payments, which may result in late fees or penalties, and may impact their credit reports; and could be unable to recognize signs of fraud or identity theft.

If they are able, your parent or loved one may sign a Financial Power of Attorney to designate someone to assist with financial management if they become incapacitated. A Power of Attorney is a legal document in which the person appoints someone else to act for them under certain circumstances.

As part of your preparation, consider working with your parent or loved one to gather information such as personal identification numbers (PINs) for bank cards, access codes, and even passwords for online accounts.

If someone is mentally incapable of managing their finances, a guardian of property can be designated by a court. An attorney can help you find out more about options. It’s important to note that laws relating to Powers of Attorney and the appointment of guardians of property are set at the provincial or territorial level.

If you have a Power of Attorney which allows you to access and manage financial accounts or are a guardian of property, you can contact your parent or loved one's lenders and creditors, and banks to find out what information you'll need to provide to gain access to their accounts.

What is a Charge-Off?

Highlights:

  • A charge-off means a lender or creditor has written the account off as a loss, and the account is closed to future charges

  • Once an account becomes a charge-off, it may be transferred by the lender or creditor to a collection agency

  • You are still legally obligated to pay a debt that becomes a charge-off

If you’ve fallen behind on payments for one of your credit accounts, you may be notified – or see on your credit reports – that the debt has been charged-off.

But what is a charge-off, exactly, and how can it impact credit reports and credit scores? Here are some frequently asked questions regarding charge-offs:

What does charge-off mean? Simply put, a charge-off means the lender or creditor has written the account off as a loss, and the account is closed to future charges. It may be sold to a debt buyer or transferred to an internal or third-party collection agency.

So does that mean I don’t owe the debt any longer? No. You’re still legally obligated to pay the debt. If the debt is sold or transferred, you may end up making payments directly to the collection agency or debt buyer, not the original lender.

When do charge-offs happen? It depends on the repayment terms and the type of account, but the time frame is generally between 120 and 180 days after you become delinquent or miss a payment on the account. Creditors will likely first send letters or call to remind you of the past-due amount before the account is transferred to a collection agency or sold to a debt buyer.

Can my account be charged off even if I’ve been making payments? Yes, your account may be charged-off if you haven't satisfied the account terms and your account becomes delinquent. Your account may also be charged off if you file for bankruptcy.

Will a charge-off impact credit reports or credit scores? If the original lender and the collection agency or debt buyer reports to either of the two nationwide credit bureaus, the status of the account will be updated to charge-off status. Because a charge-off occurs when a financial commitment hasn’t been completely satisfied, it will likely show up on credit reports along with those late or missed payments. And because credit scores are calculated using information from credit reports, your credit scores may be impacted. The charge-off will only appear on credit reports from credit bureaus the lender or creditor reports to -- some may report to one, or none at all.

How long will the charge-off stay on credit reports? Similar to late payments and other information on your credit reports that are considered negative, a charged-off account will remain on credit reports up to 6 years from the date of the first missed or late payment on the charged-off account.

If I pay the debt, will it remain on credit reports? Yes, though it will show as a paid charge-off or paid collection when the lender, collection agency, or debt buyer reports it as paid to credit bureaus. If you pay the charge-off or collection before the 6-year period is up, it remains on credit reports but may have less of a negative impact on credit scores, depending on the credit scoring model used.

If you have more questions about what a charge-off is or are facing a charged-off account, contact your lender. The original lender or the collection agency may be willing to negotiate a payment plan or settlement.  A payment plan or settlement may also impact your credit scores, though it may have less of an impact on credit scores than a charge-off, depending on the credit scoring model.

Divorce, Debt and Credit

Highlights:

  • Filing for divorce and divorce proceedings will not impact credit reports or credit scores

  • Understand your divorce decree

  • If joint credit accounts are not paid as agreed, your credit reports and credit scores may be impacted

Dissolving a marriage is never easy – for many reasons, including unraveling your finances and debts. And you may be wondering if a divorce affects your credit reports and credit scores.

First, filing for divorce – or the actual divorce proceedings – will not impact credit reports or credit scores. If you and your former spouse have kept separate finances, you’re likely to see no direct impact on them either. But, if the two of you continue to hold joint credit accounts (such as credit card or mortgage accounts) and those accounts are not paid as agreed, your credit scores and credit reports could be negatively impacted.

A few things to keep in mind:

Understand your divorce decree

A divorce decree may give your former spouse responsibility for a joint account, but that doesn’t let you off the hook where lenders or creditors are concerned. If your name remains on the account, missed or late payments reported to credit bureaus may impact your credit reports and credit scores.

Similarly, if you are an authorized user on a credit account or a cosigner on a loan with your former spouse, consider calling the lender or creditor to find out what options you may have. If you are the primary account holder, it may be possible to convert the account to an individual account, depending on the lender’s policies. Converting it to an individual account will place the account -- and the payment responsibility -- in your name.

Determine your province’s laws regarding the distribution of property

Each Canadian province and territory has its own laws regarding the division of property, and these may vary. It may be helpful to learn about the specifics in your province or territory.

Consider the impact of missed child support payments   

If you are behind in child support payments, this information could be included in your credit reports and may impact credit scores. Unpaid child support, like any negative account, may remain on your credit reports for up to 6 years.

During the divorce process, check your credit reports with both nationwide credit bureaus  

This can help you identify joint or shared accounts or debts you may need to address.

Keep in mind your credit limit on credit cards may decrease  

If you’re an authorized user on a credit card account or a joint credit card account holder and your income changes -- for instance, if one person is removed from the account, leaving only your income -- your credit limits may be impacted if a creditor reviews the account. That could affect your debt to credit utilization ratio – the amount of credit you’re using compared to the total amount available to you. This ratio is one factor that impacts credit scores.

Getting a Credit Card: 4 Things for Young Adults to Know

Highlights:

  • Young adults who may not understand how to use credit cards wisely can find themselves in financial trouble

  • As a first step, evaluate whether you need a credit card

  • Make a plan, understand minimum payments and debt, and shop around

Whether they’re recent graduates or living on their own for the first time, many young adults find themselves responsible for managing their own finances. But young adults who may not understand how to manage money and how to use credit cards wisely can quickly find themselves in financial trouble.

Here are a few things you should know when it comes to getting a credit card:  

1.    Evaluate whether you need a credit card  

First, think about whether you really need your own credit card – and be honest. What do you need the credit card for? Do you have a job and a strategy for paying back any debt you might accumulate? Do you know how to save for emergencies? These are important things to consider when you’re deciding whether to get a credit card.

If you aren't ready to get a credit card just yet, there are some alternatives. If you want to start building a credit history, for instance, you could become an authorized user on a parent or guardian's credit card account. That means you're added to a primary credit card account and the account will show on your credit reports (assuming the credit card company reports to any of the two nationwide credit bureaus). While authorized users aren't responsible for the financial obligations on the account, they can be impacted by whether or not the account is paid on time -- meaning your credit reports, and by extension, your credit scores, will likely reflect positive or negative payment history.

If you think you may need a credit card for emergency expenses, you may want to consider an emergency savings fund as an alternative.

2.    Plan it out

Before you apply for a credit card, determine the monthly payments you can afford. What’s your monthly income? If you’re in school, do you need to budget for books and food? Remember that you need to adjust your spending to match your situation. For instance, if you’re paying your credit card bills with income from a job, and you need to work fewer hours during exam time, you will have less money to spend.

3.    A word about minimum payments and debt  

A minimum payment is shown on your credit card statement, and it's the lowest amount you can pay each month and not face additional fees (although you may incur interest) or have a late payment reported to credit bureaus. It is always best to pay off your balance in full every month, but if you cannot do so, you must at least make the minimum payments to remain in good standing with the creditor.

In Canada, federally regulated credit card issuers are required to tell you on your statements how long it will take you to pay off your debt if you only make the minimum payment. Why is that? That’s because when you enter into an agreement with a lender that extends your credit, in addition to paying back what you borrow, you are also generally paying interest on any balance remaining at the end of each month. Interest is simply the price you pay to borrow money. If you only make the minimum payment, and you have a balance at the end of the month, the lender will charge interest on that balance. The more often you carry a balance, and the more interest you incur over time, the longer it will take you to pay off what you owe. Remember that the way you use credit now may affect your future.

4.   Learn how to shop around for the right credit card  

If you’re in college or university and looking to get a credit card, some financial institutions offer credit cards specifically geared toward those consumers who are just starting to build a credit history.

Under the law, no one can get a credit card on their own in Canada until they are 18 years old or the age of majority in their province or territory. After you reach 18, you might want to consider a secured or student credit card.

Remember that when you apply for a credit card, the company will likely review one or more of your credit reports from the two nationwide credit reporting agencies. That’s known as a “hard inquiry.” Multiple hard inquiries at the same time may impact credit scores, which is something you may want to consider before applying for multiple cards at the same time.

If you decide to get a credit card, ask the credit card company if they report to credit bureaus. Then, you can start to get into the habit of checking your credit reports regularly to make sure the information being reported is accurate and complete.  

Establishing Credit When You Don't Have Credit History

Highlights:

  • Consider a secured or student credit card or secured loan

  • You can become an authorized user on a credit card account, or get a co-signer

  • Remember that building a credit history takes time

It’s a situation many young adults face when they’re just starting out – how to establish credit when you don’t have a credit history. After all, you can’t show that you’ve demonstrated responsible credit behavior when a lack of credit history means you can’t get credit – meaning a loan or a credit card. There are, however, a handful of options when you’re just starting to establish responsible credit behaviors.

Consider a secured or student credit card. A secured credit card requires you to make a deposit upfront, possibly the same amount as your credit limit. You can use secured credit cards just like an unsecured credit card – to make purchases and make regular payments. If you fail to pay the balance of a secured credit card off each month, it will incur interest. And when you close the account, you receive your deposit back, minus any outstanding balance and fees.

Because a secured credit card is meant to help a consumer establish a credit history, it’s not meant for long-term use. Ask whether your credit card company reports to the two nationwide credit bureaus – Equifax and TransUnion. If they do not, the credit card account will not help establish a credit history.

If you’re a student, some credit card companies also offer student credit cards, which are designed to help students build credit. You usually have to be a student to qualify – many, but not all, companies require applicants to provide school information.

In addition, many large banks and credit card companies offer credit cards with low credit limits to consumers establishing their credit. Some require an annual fee. Ask whether the credit card company reports to the credit bureaus. If your account is not reported to credit bureaus, it won't help you establish a credit history.

Think about applying for a secured loan. A secured loan is a loan backed by an asset that you own, such as a vehicle. A secured loan may carry lower interest rates and may offer larger loan amounts than an unsecured loan. But if you don’t make payments as agreed, you could lose the asset. You can ask whether the lender reports your loan payments to credit bureaus, as that's the only way the loan will help build a credit history.

Consider becoming an authorized user on a credit card. As an authorized user on someone else's credit card account, you’ll receive a credit card in your name, linked to the primary account owner’s credit card account.

Authorized users aren’t responsible for payment on the account, but how the primary account holder pays the account may be reflected in your credit history. It’s important to know whom you’re becoming an authorized user with, whether they have responsible payment behavior and whether the account has a positive history.

Before you become an authorized user, you (or the primary account holder) may want to consider contacting the credit card company to determine if they report information about authorized users to the two credit bureaus. If not, the account won’t help build a credit history for an authorized user.

Use a co-signer. A co-signer is a person who agrees to be legally responsible to pay a debt if the borrower does not pay back a loan as agreed. One common scenario is for parents to co-sign on a car or student loan. The benefits of getting a co-signer may include better loan terms or qualifying for a loan you might not otherwise get.

However, it’s not an agreement to enter into lightly. Failing to make payments on the loan can impact both you and your co-signer.

Establishing a credit history takes time, so don’t expect things to change dramatically overnight. But month by month, responsible credit habits will translate into a positive credit history.

Once you do establish a credit history, it's important to regularly check your credit reports to ensure the information being reported to the credit bureaus is accurate and complete.

Credit Counselling: Your Questions Answered

Highlights:

  • Credit counselors offer services ranging from individual counseling to debt or money management plans

  • Companies, agencies, and counselors cannot quickly "fix" your credit scores or credit history

  • Take some time to research companies and credit counseling agencies

If you’re struggling with debt and trying to keep up with bills, credit counseling is an option you could consider. But it can be hard to figure out just what credit counseling can – and can’t – do for you, and how to find a legitimate organization rather than a “credit repair” scam operation.

Here are some answers to Canadians’ credit counseling questions from Julie Kuzmic, director of consumer advocacy for Equifax Canada.

Q. What can credit counseling do for me?

A. Credit counselors can provide services ranging from individual counseling to debt or money management plans. Counselors will assess the current state of your finances and help find options for you, whether that’s a credit card consolidation loan, a plan to manage debt, a consumer proposal, or bankruptcy. They can also help with budgeting, spending habits, and credit use.

Credit counseling can be a helpful first step to review your debt, help you handle collection calls, and offer advice on a path forward. The next step might be a money spending plan, a debt consolidation program, or credit counselors might suggest that you talk to an insolvency trustee about a consumer proposal or bankruptcy.

It’s important to remember that companies, agencies, or counselors can’t quickly and easily “fix” your credit scores or your credit history. If the information on your credit reports is accurate and complete, the only way to improve your credit standing is through the passage of time and solid repayment behavior.

Q. How can I tell the difference between a legitimate credit counseling agency and a scam?

A. Some companies may say they can solve your debt problems quickly, or boost your credit scores. Others may push high-interest loans to pay off your debts or say they can manage your consumer proposal or bankruptcy. Only licensed insolvency trustees can legally provide access to consumer proposals and bankruptcies.

Q. How do I find a legitimate credit counseling agency?

A. Take some time to research companies and credit counseling agencies. The Financial Consumer Agency of Canada recommends ensuring that the agency is in good standing with a provincial or national association. You can check the Better Business Bureau to see if there have been complaints about the agency. If an agency claims they are part of a government program, consider contacting the government department or agency that oversees that program to make sure. And remember – if something sounds too good to be true, it probably is.

Q. What is a debt management plan?

A. A credit counselor can make a debt management plan proposal to your lenders and creditors. Under a debt management plan, you can combine your debts into one monthly payment. In some cases, interest may be waived or reduced. But you’ll usually have to repay all your debts. It’s a voluntary agreement and not all lenders and creditors may agree to it.

In addition, you may have to pay a fee to the credit counseling agency. Debt management plans usually don’t cover debts owed to the Canada Revenue Agency or the Quebec Revenue Agency; student loans; auto loans; or mortgages. Make sure the counselor explains which debts are and aren’t covered.

Q. What is the difference between a debt management plan, a consumer proposal, and bankruptcy?

A. A debt management plan (sometimes called a debt consolidation program or a debt repayment program) is an option that credit counselors can facilitate which helps you pay your debts in full, sometimes with reduced interest rates or an increased timeframe. With this option, credit counselors contact your creditors on your behalf to propose a payment schedule based on your ability to pay.

The consumer proposal and bankruptcy processes are legal proceedings filed under Canada’s Bankruptcy & Insolvency Act. These procedures must be facilitated by a licensed insolvency trustee. Credit counselors cannot offer this service; however, they will suggest these steps and provide guidance if these options are appropriate for you.

Q. Does credit counseling impact my credit scores?

A. If you choose a debt management plan, consumer proposal, or bankruptcy, all of these will impact your credit scores for some length of time, ranging from two years after you complete the debt management plan to 6 or 7 years for a first-time bankruptcy (depending on your province).

Q. Where can I find more information about credit counseling?

A. The Government of Canada has a detailed credit counseling page on its web site, with information from the Financial Consumer Agency of Canada. It has links to several associations where you can find a legitimate credit counselor.

How Long Does Information Stay on My Equifax Credit Report?

Highlights:

  • Most types of negative information generally remain on your Equifax credit report for 6 years

  • Closed accounts that were paid as agreed remain on your Equifax credit report for up to 10 years after they were reported as “closed” by the lender

  • Hard inquiries may remain on your Equifax credit report for 3 years

When it comes to credit reports, one of the most frequently asked questions is: How long does information stay on my Equifax credit report? The answer is that it depends on the type of information and whether it’s considered “positive” or “negative.”

Generally speaking, negative information such as late or missed payments, accounts that have been sent to collection agencies, or a bankruptcy stays on credit reports for approximately six years. Here is a breakdown of some of the different types of “negative” information and how long you can expect the information to be on your Equifax credit report:

  • Late payments remain on a credit report for up to 6 years from the date reported. This is also known as the “previous high rate” based on the system used in Canada to rate payments. The late payment remains on your Equifax credit report even if you pay the past-due balance. For instance, if you had a late payment in April 2011, the late payment would come off your Equifax credit report in April 2017, 6 years after the date of the missed payment.

  • Collection or charged-off accounts: If you have a late payment and don’t pay the past-due balance, the account could eventually be charged off by the original lender and assigned to a collection agency.  If that happens, the entire collection account would be removed 6 years from the date of your last payment. If you pay the collection account before the 6-year period is up, it remains on your Equifax credit report, but the account may have less of an impact on your Equifax credit score.  

  • Bankruptcy stays on your Equifax credit report for 6 years after the discharge date or 7 years after the date filed without a discharge date. If a second bankruptcy is filed, then the first re-appears on your Equifax credit report, and both bankruptcies remain for 14 years after the discharge dates.

  • Judgments are debts you owe because of a court action. This information stays on your Equifax credit report for 6 years.

  • A registered consumer proposal is a legal agreement set up between you and your creditors, in which they agree to allow you to pay off a percentage of your debt. A consumer proposal will be removed from your Equifax credit report 3 years after you’ve paid off all the debts according to the proposal, or 6 years from the date it was filed, whichever comes first.

  • Secured loans remain on your Equifax credit report for 6 years from the date filed.

  • Banking items, such as cheques returned for insufficient funds, remain on your Equifax credit report for 6 years from the date reported.

Here are some examples of "positive" information and how long it stays on your Equifax credit report:

  • Active accounts paid as agreed. Active credit accounts that are paid as agreed remain on your Equifax credit report as long as the account is open and the lender is reporting it.  

  • Closed accounts paid as agreed. If the last status of the account is reported by the lender as paid as agreed, the account would stay on your Equifax credit report for up to 10 years from the date it was reported by the lender as closed to Equifax.

Lastly, hard inquiries result when a potential lender, creditor, or service provider requests a copy of your Equifax credit report in response to a request for credit or certain services. These can remain on your Equifax credit report for 3 years.

Regularly checking your Equifax credit report is an important step to ensure your information is accurate and complete, and confirm that any negative information falls off after the appropriate time period.

You can order a free copy of your credit reports by contacting Equifax or TransUnion.