What Do Credit Reporting Agencies Look At?

Every time you apply for a loan, or make a payment on time on a loan or credit card (or don't make one) it most likely will be transmitted to one of three credit reporting agencies. They are Equifax in Georgia, Experian in Texas or Trans Union in Pennsylvania.

Not only that, but if anyone looks into your credit history, it can be reported as well. Different companies have different policies about how and when they report and to which one of these reporting agencies. That would be a good thing for you to find out. Why? The answer is because these reporting agencies do not readily coordinate information with each other. Your credit score can be top notch with one, and mediocre with another.

Where did these reporting agencies come from? Well, they evolved over the years as lenders sought ways to determine people's reliability in repaying the money they were asking to be loaned. These agencies began as investigators who looked into credit histories. People would put down their credit references and those would be sent ot one of these agencies to verify.. The trouble was, people wouldn't list the references that would not give them a glowing report. It became useless because people would pay one or two creditors on time and well, and let others slide.

Over time, it became more commonplace for lenders to report to these investigating agencies. That ended up being a win-win situation for both the agencies and the lenders. More accurate information was tabulated and gathered. Or so that was the idea. In reality, it often times is not all that accurate. How come?

Basically it is human error and overload. These three giants have so much data coming it that errors are bound to occur. Numbers get mistyped, or names confused. That is why it is wise to check all three of your scores and records through these three reporting agencies.

How do the agencies calculate your score? Here is a breakdown.

a. 35%, the largest percentage is calculated from your credit history - did you pay on time, or if not, how late and how often did you pay late, etc. It looks as if you have walked away from debts or been sent to collections.

b. Then another 30% is based on who you owe and how much to each. It is better to owe a little to ten people, than to have close to your max to five.

c. About 15% looks at the length of time you have had credit with a company.

d. The last 20% combine how many times someone has inquired about your credit and what types of credit do you currently have, i.e., house, boat, car, cards, education, etc.

All totaled up it comes out to your score and what your credit ratio is versus your income ratio. But remember, not everything is reported to all three agencies. For that reason, often lenders will look at two of them, or at times all three. That way they get a broader picture of your income to spending patterns and can better determine the interest rate they would be willing to give you.

The Federal government requires all three credit reporting agencies to divulge your score for free every twelve months. This was part of a Congressional act several years back. So, it would be prudent to take advantage of that law and contact each credit reporting agency once a year. A good date to remember would be on your birthday. Of course, before you think about applying for a loan, a look-see into what all three of these credit reporting agencies currently have on you is a good idea. That avoids embarrassing surprises.