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Credit Reports and Credit Reporting Agencies
By Ethan Hunter
We all know that our financial transactions are reported to
credit agencies that track how well and how quickly we pay
our debts and that when we apply for a loan for one reason
or another, those agencies report our credit history to
prospective lenders. However, most of us don¡¯t know a great
deal about how that actually happens and how our credit is
rated.
The fact is that credit reporting has evolved to an industry all
of its own. Just a few short years ago, when someone
applied for a loan, he or she put down credit references ¨C
retail stores, banks, or other people or places with whom they
had done business in the past. As a matter of course, the
lender checked the references and decided whether or not to
grant a loan based on an amalgamation of the responses
from them. That really isn¡¯t the case any more.
Instead, there are three major agencies that track everyone¡¯s
credit and provide a credit rating when contacted by a
potential lender. The three agencies are Equifax, located in
Georgia; Experian, located in Texas; and Trans Union, located
in Pennsylvania. When someone applies for a loan, the lender
generally contacts one of these three agencies and obtains a
credit score and the score helps the lender decide whether or
not to make a loan.
Credit Scores
How is a credit score calculated? Until recently, that was one
of life¡¯s great mysteries, but over the past few years new
rules and regulations have made the information more readily
available. Your credit score is a number that ranges from 300
to 900, although the exact formula for determining that
number is proprietary and is not released. This is how it
works in general.
¡¤ 35% of the score is based on the history of how you
have (or have not) paid your bills. The agencies track how
many of your bills have been paid on time and how many
haven¡¯t, as well as whether or not any of them have been
referred for collection. The more recently you have had a
collection or failed to pay something on time, the worse your
score will be.
¡¤ 30% of the score is based on the debts you have at
the time of the rating. It is includes car and home loans,
credit card debt, retail store debt and the like. If you have
several credit cards and they are all limited out, your credit
score is lower.
¡¤ 15% of the total score is based on how long you have
had credit. If you have never had credit or have only had
credit for a short time, the lower your score will be.
¡¤ 10% of the score is based on the number of inquiries
that have been received about your report, particularly if
there are several in the past year.
¡¤ 10% of the score is based on your current credit and
the types of credit you have. The number of credit cards and
loans you have, as well as the available credit you have on
your credit cards and considered.
Because your credit score is based on these factors and they
are constantly changing, your credit score changes along with
them. Therefore, there are things you can do to change your
credit rating and bring it up.
Changing your Credit Rating
The first thing to do is get a copy of your credit report and
make sure there aren¡¯t any mistakes on it. If there are, take
steps to get them corrected. Errors in reporting do occur,
although the credit bureaus would like for you to think they
are foolproof. Here are a few more tips to improving your
credit rating.
¡¤ Don¡¯t pay off the entire balance on your credit card.
Keep about 75% of it paid and keep a 25% balance. This
applies to multiple credit cards as well.
¡¤ Don¡¯t get rid of your older accounts. Keep them open.
The credit reporters look at the age of your accounts and the
longer you have had a particular account in good standing,
the better.
¡¤ Pay your bills on time. Experts say that this is
probably the most important factor of all.
¡¤ Prevent inquiries to your credit report whenever
possible. Your score drops with the number of inquiries.
The real key, however, is to only get credit when you need it
and when you do get it, use it wisely. You can damage your
credit rating with just a few late pays or collections and it may
take up to a year of paying everything on time to build up a
better rating.
About the Author
Ethan Hunter is the author of many credit related articles. If you are looking for help with Payday loan or any type of faxless loans please visit us at http://www.PaydayLoanChoice.com
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