Who Reports to Credit Bureaus?

The credit bureaus are the companies that maintain and update your credit report. They receive regular reports of debts and your payment history on those debts from your creditors and use that information to update your credit file.

Revolving Debt

All creditors with which you carry revolving debt usually make regular reports to the credit bureaus. Revolving debts are lines of credit and credit cards.

Installment Debt

Creditors to which you owe installment debts such as mortgage loans, personal loans and vehicle loans all report to the credit bureaus.

Public Records

The courts will report many public records that exist about you to the credit bureaus for inclusion on your credit report. You can expect to see evictions, judgments and bankruptcies all appear on your credit file.

U.S. Government

The U.S. government reports all federal student loans and any unpaid taxes you owe to the credit bureaus.

Delinquencies

Companies such as utility companies and cell phone providers typically do not report positive accounts to the credit bureaus. Once your debt becomes delinquent, however, the debt will almost certainly be reported.

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Is it Possible to Get a Good Interest Rate With a Low Credit Score?

Lenders use your credit score to determine your level of risk. The lower your credit score, the higher your rate of interest. With a low credit score, you will not be able to get a good interest rate.

Significance

When you apply for a loan, whether it's a mortgage, auto loan or credit card, the lender will take a look at your credit report. That information will help determine the interest rate you receive. Your credit score will be a key factor used when deciding the rate you receive.

Effects

If you receive a high interest rate because of your credit score, you may be able to get a lower interest by refinancing later when your credit score has improved.

Warning

To improve your credit score, you need to make all of your payments on time and make sure you don't accumulate too much credit card debt. If you use more than 30 percent of all your available credit, your credit score will start to decline.

Credit Score Range

Your credit score can range from 300 to 850. If you have a score below 620, most lenders will not approve you for a mortgage loan.

Considerations

According to MYFICO.com someone with a FICO score (credit score) in the range of 740-850 will receive an interest rate of 7.770% and a monthly payment of $471 based on a home equity loan for $50,000. A FICO score of 620 to 639 will have a monthly payment of $603 and an interest rate of 12.095% for the same loan. These figures are based on national averages. FICO scores are credit scores, and they were developed by the Fair Isaac Corporation.

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How to Decode Equifax

According to the Federal Deposit Insurance Corporation (FDIC), Equifax is one of the three major providers of consumer and business credit reports in the United States. User-friendly online interfaces make ordering your credit report a snap. However, ordering your credit report is simpler than reading the report itself. Equifax uses a system to record and report your credit history, and understanding what each code means can be tricky. However, learning how to read your credit report will help you understand your current financial situation and what steps you need to take to improve it.

Instructions

1

Order your free annual credit report from Equifax or AnnualCreditReport.com, the central site set up as a service for consumers (see the Resources section).

2

Review your personal information on the report, once you receive it. This is the first section of your report and reflects the most basic information about you, such as your name, any names that may have been associated to you in the past, your current address and the past three addresses on file for you, your current and two previous employers as well as your current position. The presentation of this information is straightforward.

3

Review the Public Records section. This is the section of the report that reflects any judgments, liens or bankruptcies that have been recorded. The information is presented in chronological order and will reflect the date that the record was filed, the date it was resolved, the court in which it was heard and the outcome of the case. It's best for your credit rating if this section is blank, explains to Bankrate.com.

4

Review the Tradelines section. This is the section that most people relate to their credit report and, potentially, the most complex to decode. This section lists all of your current and past credit accounts. Each account will list such items as the names of your creditors, your current balance, your highest balance, when the account was opened and whether or not you are paying your account on time. Delinquent accounts are in categories according to the amount past due, such as 30, 60, 90 or 120 days. Other classifications include "charge-off," "repossession" or "transferred."

5

Review the Inquires section. This section will let you know who has requested a copy of your credit report. There are two types of credit inquires: those in conjunction with an offer or promotion that are initiated without your direct consent and those requested by a lender or other service provider as part of an application process that you initiated. According to Bankrate.com, most inquiries are ignored, unless there are many initiated by you over a long period of time.

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FICO Score Analysis

The FICO credit scoring system uses a proprietary mathematical algorithm to translate credit report information into a three-digit number. The score ranges from a low of 300 to a high of 850; the higher the number, the better the score. Your score may differ from one credit bureau to the next, because each bureau may have different credit information in its database.

Scoring Factors

Your FICO credit score relates directly to the information in your credit report. How well you pay your bills accounts for 35 percent of your score. How much debt you have accounts for another 30 percent. Fifteen percent of the score comes from the length of your credit history. The type of credit mix you have determines 10 percent, and the final 10 percent measures the amount of new credit for which you recently applied.

Creditworthiness

How you handle your credit accounts determines whether you will have a high or low score. According to MyFico, paying your bills on time increases your credit score. This single factor accounts for the bulk of your FICO score. Late payments, charge-offs, repossessions and other derogatory items will lower your score. For example, a 30-day late payment can reduce your score by as much as 45 points, while a bankruptcy will send it plummeting by as much as 240 points.

Accurate Reporting

Because your FICO score derives from the data in your credit report, it's imperative that the information in the report be as accurate as possible. Under the Fair Credit Reporting Act (FCRA), bureaus must remove erroneous data from credit reports. If your report contains errors, correcting those errors is one step toward improving your score, according to Bankrate. The FCRA gives you the right to file a dispute with the bureau in order to have errors corrected or removed. The bureau has 30 days to investigate your claims and make corrections. You can file a dispute online at the bureau's website, or by phone or mail using the number or address on your credit report.

Time Limits

If you have poor credit, bear in mind that it's not permanent. Your FICO score changes as the data in your report change. The FCRA limits the amount of time a negative item may appear on a credit report to seven years, with a few notable exceptions. Chapter 7 and 11 bankruptcies both remain on a report for up to 10 years, as do dismissed or non-discharged Chapter 12 and 13 bankruptcies. Unpaid tax liens remain for up to 10 years in California, and indefinitely in other states.

Warning

Be wary of credit repair companies that promise to raise your credit score for a fee. Their claims that they can repair your credit may be fraudulent, according to the Federal Trade Commission. The FCRA does not require credit bureaus to remove accurate accounts from credit reports. Also, the FCRA gives you the right to dispute errors on your own for free.

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Is Your Credit Score Affected by Open Card Accounts?

Credit scores are figured by a byzantine formula that mystifies most consumers. One of the most confusing aspects of credit scoring is how credit scores react to credit card activity. Everything from opening a new card to closing an old account can result in dings to your credit score. Treat open accounts with care, or your credit score could fall.

Making Payments

It may seem obvious, but making payments on open credit card accounts on which you are carrying a balance affects your credit score more than anything else. If you're carrying debt on an open account and miss a payment, expect your score to fall. Consistent late payments, or late payments to more than one card, are a recipe for credit score disaster. No surprise, then, that making payments on time and in full each month is the best thing you can do for your credit score.

Credit Limits

Lenders who use your credit score to determine whether you are creditworthy like to see that you're not overextending yourself by carrying high debt on other loans and credit card accounts. For that reason, the closer your credit card balance is to your credit limit, the more your credit score is affected. Aim to keep your balances at 30 percent or less of your credit line to keep open card accounts from adversely affecting your credit score.

Adding New Accounts

The credit card accounts you already have open aren't the only the only accounts with the potential to harm your credit score -- new accounts can also cause you problems. Each time you open a new credit card account, your credit score takes a ding, because you are accessing more credit. When you make a large purchase that puts the card balance near the credit limit, or transfer balances, the damage is compounded. Open new accounts only when necessary, and undo damage done by these accounts by keeping your balances low and paying on time.

Closing Existing Accounts

One of the most bizarre quirks of credit scoring is the effect that closing an open credit card account, even one in good standing, can have on your score. Closing an open account, even to switch to a card with better rates or lower fees, can take points off your credit score because you have less credit available to you and the balances on your other cards will show as a larger percentage of credit used. The good news is, your score will rebound quickly as long as you make timely payments on other credit accounts.

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How Are Credit Score Points Calculated?

Your Creditworthiness

Your credit score serves as your first impression to a lender, as that three-digit number describes your level of risk. The score is calculated by putting the information found in your credit report into a mathematical algorithm or formula that leads to a three-digit number ranging anywhere from 300 to 850. The lower the credit score, the higher your level of risk, and vice versa for a high credit score.

The FICO Scoring System

There are numerous credit-scoring systems. However, the system most commonly used by the three major credit bureaus is the FICO scoring system. The original FICO scoring system was created in 1958, and the acronym stands for the Fair Isaac Corporation. Even though Equifax, Experian and TransUnion, (the three major credit bureaus) all use a credit scoring system created by FICO, each agency calls it by a different name. For example: TransUnion uses Empirica, Equifax uses Beacon Score, and Experian uses the Fair Isaac Risk Model. (See "Resources.")

Categories

Five major categories are used to calculate your credit score. The first is your payment history, and it makes up 35 percent of your score. The second category accounts for 30 percent, and it's your credit-to-debt ratio, or utilization. For example, if you have a credit card with a $2,000 limit, and you charged $1,000, your credit-to-debt ratio would be 50 percent, because you have used half of your available credit. The third category is your credit history, which counts for 15 percent. The last two categories account for 10 percent apiece. One is the different types of credit that you have, and the last category is any new credit or credit inquiries.

Credit Scale

Credit scales range from 300 to 850, so every consumer can be provided a score. According to the Fair Isaac Corporation, a credit score ranging from 720 to 850 is considered very good and will get you very low interest rates with your lender. However, most consumers fall between 600 and 800. (See "Resources.")

Remodel

A more unified scoring system, Vantage Score, was created in March 2006 by the three major credit reporting agencies, Experian, Equifax and TransUnion, as a way to simplify the standardized scoring system. In the past, the three credit bureaus have been criticized for providing significantly different scores for the same consumer, meaning that each system scored the same borrower differently. The new system attempts to alleviate that problem by providing more consistency. It has not caught on as well as the agencies hoped, but it is available for borrowers and lenders.

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Will Closing a Credit Card With a Balance Affect My Credit Score?

Two of the top things that can affect your credit score negatively and are big credit mistakes include not paying the minimum amount due every month and closing a credit card, especially one with a balance. You will not increase your credit score by closing your credit cards, so put them back in your wallet and pay off those balances.

Credit Card Balance

When you close any credit card you no longer have available credit from that card. But when you close a credit card with a balance and no longer have available credit, it shows up on your credit report as if you maxed out your credit card.

When you have available credit that you aren't using, you're less risky when you apply for loans or other credit cards and your credit score goes up. For example, if you have a credit card with a $5,000 limit and you've racked up $2,500 worth of credit on it, you're utilization is at 50 percent. If you have a second credit card with a $5,000 limit with no current charges, then your utilization is at 25 percent. If you close either of those credit cards, your utilization will go up and your credit score will go down.

Credit Report

Most of your credit accounts are wiped off of your credit report if there is no activity for seven years. However, your credit card accounts will not be erased if you keep them open. According to credit.com, when you close the account, your date of last activity starts and the credit account will eventually be permanently removed from your credit reports.

You may wonder why it matters that your account stays open. You don't want your good credit history to disappear, so continue to make your monthly payments to pay off your balance and keep the account open. The more good history on the report, the better your credit score, which is also known as FICO score. If this is your oldest credit card, one with the longest history, you should keep it open.

Use the Card

If you keep the account open but never use the card, the credit card company could end up closing your account. Once you've paid off the balance, ensure that your account doesn't get closed by paying for groceries every week on one of your credit cards and paying off the bill as soon as you receive it, so you're not paying interest on your groceries.

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