In the United States, there are three major credit score agencies, or credit reporting agencies; they are TransUnion, Equifax, and Experian. The three credit score agencies are responsible for gathering and providing information on individual consumers. Banks and other financial institutions, as well as landlords, utility companies, and even insurance agents, have come to rely heavily on the information that credit score agencies provide as a means to determine the creditworthiness of individuals. If you intend to ever purchase with credit, the credit score agencies are likely to have a direct influence on your lender’s decision about whether or not to extend you credit and how much it will cost you to borrow money, i.e., what your interest rate will be.
Since the credit score agencies have a direct bearing on your financial life, it is important to make sure that you are careful to avoid behavior that will negatively affect your credit history, and it is equally important that you check your credit report periodically to ensure that the information is timely and accurate.
What types of transactions and credit information decreases your score? Having too much debt. The credit score agencies look at your income and how much debt you have; this is called your debt-to-income ratio, and if it is too much, your credit score will be lowered. Generally speaking, the credit score agencies and lenders like your total debt-to income to be no more than about thirty-six to thirty-eight percent. Even if you have been able to keep up with your payments and have made your payments on time, it is still considered important that sixty-two to sixty-four percent of your income is not involved in paying off loans.
What else decreases your credit score? Having late payments. If you have late payments reported to the credit score agencies, the natural conclusion is that you have difficulty meeting our monthly obligations. If that is the case, it just makes sense that lenders should be cautious about lending your more money.
What other information do the credit score agencies consider “bad?” Having a lot of account activity over a short period of time. If a lot of different companies are accessing your credit score at around the same time, it indicates that you are shopping around for credit and that you may be taking on too much debt. It is a red flag and can lower your credit rating. However, accessing your own credit report has no effect whatsoever on your credit score, so do not worry about that.
Do all three credit score agencies give you the same score? Not necessarily. Lenders realize this, so they generally use the average of all three scores. They may only use one agency, also, but that is usually not in your best interest, because what happens if they just happen to use the one that has incorrect data about you? Ever heard of Murphy’s Law? Usually, the reason for the different score is that not all three credit score agencies have the same data. Not every creditor reports everything to each agency. Check your report regularly and correct errors in a timely fashion; keeping a good credit rating in a harsh economy is tough enough without having mistakes in your file.
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