CREDIT SCORE

It's your right to know what credit scoring agencies are saying about you. Finding out this information is doesn't cost a lot and takes only minutes to do - which may be time very well spent.

So what is credit scoring?
Simply put, credit scoring is a method of assessing the credit risk of a loan applicant. It uses mathematical models to evaluate a person's credit worthiness based on their credit history and current credit accounts. The system was first developed in the 1950s, but has come into widespread use in just the last couple of decades.

WHAT GOES ON YOUR CREDIT SCORE?

So you've got your credit score report. What numbers do they crunch to come up with it? Where's it all coming from? It's really not all that hard to understand, and learning more about what factors influence your individual number can help you improve your credit score in the years to come.

Knowing the Players
Three major credit bureaus, Experian, Equifax and Trans Union, calculate consumer credit scores. Each company has developed statistical models allowing them to determine scores based on your own individual credit history.

About thirty individual factors are used to determine your score. Certain factors, such as loan payment history, may carry more weight than other parts of your credit history. Indeed, it's important to remember that each person is different. A factor that may be important to your score might be less important for someone else because of differences in your credit past. Also, each factor's importance can change as your credit report changes and has new information added to it.

WHAT TO LOOK FOR ON YOUR REPORT?

You've pulled a copy of your credit report and are now looking at a tangle of information. You see your last three addresses, a long list of businesses that have checked your report, and dozens of credit accounts. But what does it all mean? Which information should you look at first? Here's a quick rundown of your credit report and the key information on it:

Why should I care about my credit report anyway?
A credit report is a factual record of your payment history and other credit-related items that lenders use to help determine whether to grant you credit. The information on your report is compiled by the credit bureaus, which regularly receive data on whether you make payments on time and how much you owe. Since creditors are constantly reporting new information to the bureaus, your credit report is always changing.

WHO KEEPS TRACK?

You are most likely already familiar with the concept of "credit," the reputation for paying your bills on time that makes it possible for you to obtain money or goods with the understanding that you will pay for them later.

But even if you use your credit every day, you may have questions about the credit industry and how it affects you. In today's society, credit is much more complicated than keeping a tally at the local grocery. As a credit-active consumer, you need to know how credit reporting works and what your credit report contains.

What Is a Credit Bureau?
A credit bureau or credit reporting agency is in the business of gathering, maintaining, and selling information about consumers' credit histories. It collects information about consumers' payment habits from credit grantors like banks, savings and loans, credit unions, finance companies, and retailers. The credit bureau stores this information in a computer database and sells it to credit grantors in the form of credit reports. When you apply for a new credit card or loan, the credit grantor orders your credit report from at least one credit bureau and analyzes the information to decide whether to grant you credit. The credit bureau charges the credit grantor a fee for every credit report sold.