Credit Rating Process

Credit Bureaus

There are three major credit bureaus, Transunion, Experian and Equifax, that collect demographic and financial information on consumers. This information includes a person's name, address, employer, loans, credit card accounts and payment history. This information is used to determine the person's credit rating. A poor payment history and other negative information can bring down a credit rating significantly. A good history will contribute to a high credit rating.

Credit Score

A person's credit rating is most often expressed in terms of a credit score. This is a three-digit score that is computed using a formula that takes the person's credit history and financial information into account to determine whether or not she is a good credit risk. The most commonly used credit score is known as the FICO score, which is compiled by an independent company called Fair Issac Corporation. According to Fair Issac, the FICO score is based on the type of accounts a person has, the amounts owed on those accounts and the payment history. The length of the credit history and the amount of new credit that has been granted also is taken into account. Amounts owed and payment history are the two biggest factors in determining the credit rating. Together they account for 65 percent of the FICO score.

Accuracy

A person's credit rating is only as accurate as the information on his credit bureau reports. If he is denied for a loan because of a bad credit rating, he can review his credit reports to make sure there is no incorrect negative information. Every American consumer is entitled to one free credit report from each of the three bureaus on an annual basis. If he finds information that is wrong, he can file a dispute. It must be removed if the credit bureau cannot verify it, which will boost his credit rating.