If an individual has taken out some form of credit, such as a line of credit with a credit card company or a loan to purchase a house, he has a credit report. This report is a file of information related to that person's lending habits, including how much debt he has, what loans he has taken out, and whether he has paid his loans back. Credit reporting bureaus use this information to formulate a person's credit score.
Accumulating Information
Credit reporting bureaus collect information in several ways. In many cases, creditors will report information pertaining to an individual -- such as a record of the loans they have extended to borrowers and whether the person has paid back the loan -- directly to the bureaus. The bureaus may also collect certain kinds of public records, such as records of foreclosures, bankruptcies and civil judgments, all of which harm a person's credit score.
Score Factors
Credit reporting bureaus process the information contained in credit reports to determine a person's score. Some of the factors that have more weight when determining a person's score are the length of the individual's credit history, the ratio of his debt to his available credit, and his history of paying back loans. When creditors update these companies on a person's loan, the companies will shift the score accordingly.
The Big Three
Each of the three major credit reporting bureaus -- Equifax, TransUnion and Experian -- share information, but the way in which they process this information varies. While one bureau may give greater weight to one factor, such as the length of an individual's credit history, others may put more emphasis on another factor, leading to different scores from all three bureaus.
Considerations
Although credit reporting bureaus are private companies, the way in which they determine a person's score is regulated by a number of federal laws. For example, these bureaus are forbidden from listing negative information about a person, except the record of a bankruptcy, on a report for more than seven years. After seven years have elapsed, the information must be removed from the credit report and can no longer harm the individual's score.
0 comments:
Post a Comment