A Little Info About Credit Report Companies

Everyone by now knows their credit scores lie in the hands of credit report companies. Anytime a lender wants to verify that you are a good person and will pay off the loan you are asking for, or won't default on the credit card you are applying for, they view your credit report and score through one of these agencies.

There are three of them. They are Trans Union out of Pennsylvania, Experian, which used to be TRW, in Texas and Equifax that has a home base in Georgia. Understand that each of these agencies work independently of each other and not every transaction are reported to all three simultaneously. Your score may be excellent with one or two and not the other.

Where did these companies come from? They sort of evolved out of the necessity to check into people's backgrounds to find out if they were good risks or not. At first, these agencies did the work and research. That took weeks. You would fill out an application with the list of your creditors and references and the companies would contact them.

The credit report companies kept copies in case someone else wanted the same information knowing that people shopped for the best deals and if one company wanted to know their credit history, another soon would as well.. Then someone got the idea to do the reporting first so it would always be there- well there for seven years. That only took a day or so to get your report.

From there, a system of calculating a credit score emerged. Now instead of spending hours going over your history, a company gets your score. Much easier for the company. But exactly how is it calculated?

35% of the score is tabulated from your credit history on how you paid or did not pay your bills. It takes into account any delinquent payments, defaults, bankruptcies or foreclosures. It also takes into account any loans paid off regularly and on time.

Next, about 30% is calculated on the number of debts you have. Do you have a car loan, a mortgage, and how many credit cards? If you have several cards and they are all close to being maxed out, that will lower your score. Why? Obviously you are having trouble handling the debt you already have.

Then 15% is made up of how long you have had credit with certain companies. Are you a long term good outstanding client? If you are new to credit, your score will be lower.

Then 10% is based on the number of times someone has looked into your credit and

10% on the types of debt you have and how much credit you have available left on your cards, your cars, on your mortgage, etc.

To keep your score in better standing, do not keep closing down credit cards and transferring balances. That shows instability and non-commitment on your part. Also, if you do pay off a balance, charge on it again in the next month. It is better to keep a small current balance on a card than to have them all paid off. Why? It again shows each month you can budget and handle credit instead of the fact you took your bonus from work or an inheritance and wiped them all out.

Now you know how your score is calculated by the credit report companies, you can be more equipped to monitor and improve it's score.