Credit Reporting - An Introduction

Will you pay too much interest on your next Car Loan? Credit, if used effectively, can be a valuable financial tool. At the same time it's a big responsibility. If you don't use it effectively, you can end up owing more than you can repay, damaging your credit rating and creating credit problems for yourself that may be difficult to fix. When dealing with the credit system, the first step is to understand exactly how credit reporting works.

"What Credit Do I Qualify For?"

• It all depends on your Credit History.
• Your Credit History tells whether you pay your bills on time, how
  much you owe & generally whether you are a good credit risk or not.
• It's the way many businesses and lenders measure your credit
  worthiness and your reliability.

"Who Keeps My Credit History?"

• Your credit history is kept within computer databases with the 3 major credit bureaus, Equifax, Trans Union and Experian. These are commonly referred to as "Consumer Reporting Agencies" or CRA's
• Financial institutions that you have borrowed from and retailers that you have done business with, report information monthly to the CRA's; providing information on payment history, late payments, etc.
• Based on this factual information, the CRA's can calculate "credit scores" that measure your credit worthiness. The higher the score, the better your credit.

Generally if you apply for a loan or a credit card, the lender will request a credit report on you, from one of the CRA's, and also request a credit score.

Your Credit Score may often be the sole criteria that lenders will use to determine what credit you qualify for.

"How is my Credit Score Calculated?"
A credit bureau score is a snapshot of your credit risk picture, at a particular point in time. Lenders use the number to help them decide, "If I give this person a loan or credit card, will I get paid back on time?" Credit Bureau scores are calculated using a computer based scoring model, developed by a company called Fair, Isaac. Fair, Isaac develops the software used by banks and credit bureaus to generate scores. When you apply for a loan, your bank may request one of the 3 CRA's to run a credit bureau score. Once the score is calculated it is returned to the lender.