Understanding Your Credit Rating - What Everyone Must Know

Posted: 05 Feb 2008 | Categories: Credit

These days it seems that you can’t do much of anything without having a good credit rating. I recently applied for car insurance and during the interview was told that my credit history would be examined before issuing a policy. While we can argue the legitimacy of this, the point is that our credit is becoming increasingly important for things other than borrowing money. Yet the average consumer doesn’t have a clue how their credit is determined by the major credit bureaus.

Until recently I believed like most people that my credit rating was based on how well I paid my bills on time from month to month. Surprisingly, how well you pay your bills plays only a small part in how your overall rating is determined. It’s strange but true. Your credit is basically determined by the following five factors: recent applications for credit, length of credit history, type of credit, total outstanding debt relative to income, and payment history. Each one of the criteria is weighted and so not all criteria affect your credit rating equally. Your payment history and total debt load amount to about one third to one half your total score.

The credit bureaus regularly consider other criteria when determining your ultimate credit score. Credit bureaus explore other elements of your financial history such as: presence of past court judgments or bankruptcies, defaults on loans, number of credit cards, and even the presence of credit rejection in the past.

It’s important to remember that credit bureaus don’t make sense on purpose. The credit bureaus want your rating to be bad. A bad credit rating allows their primary customers (lending institutions) to charge higher interest rates. By Federal law you are permitted to have access to your credit report and refute any false or erroneous information contained within your report. The three major credit reporting agencies are Equifax, Experian, and TransUnion.

As I said before, the methodology employed to determine your credit is not intended to be fair and equitable but is rather intended to be inherently unfair. The reason is because lending institutions want to charge you a higher interest rate and these institutions are the main customers of credit bureaus. Don’t be discouraged if your credit rating is not as high as you think it should be because more than likely it is being affected by things you have little control over. But you can get control of your credit by disputing erroneous items.

You can find out more about Understanding Your Credit Rating as well as get 10 Free credit rating repair tips and much more information on everything to do with credit repair just by going to: http://www.CreditRepairHelpA-Z.com

Article Author :Terry_Edwards