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CREDIT 101
Introduction to Credit
Put simply, credit is the reputation for repaying debts on time. The better your credit, the more willing companies and people will be to lend you money, issue you a credit card, rent a house or apartment to you, hire you, or provide services to you on favorable terms.
Let's take on the fundamentals of the credit reporting system. From the big three credit bureaus, Trans-Union, Equifax and Experian, to your rights under the Fair Credit Reporting Act, this article will help you navigate the credit report maze.
What is a Credit Score?
A credit score is a rating used by a lender to help determine whether you qualify for a particular credit card, loan, or service. Based on information in your credit file, the credit reporting company analyzes your information using a complex mathematical model to yield your credit score.
Most credit scores estimate the risk a company incurs by lending you money or providing you with a service -- specifically, the likelihood that you'll fail to make payments in the next two to three years. The higher the score, the less risk you represent. Your score is calculated by a mathematical equation that evaluates many types of information found in the credit file.
The credit reporting agencies – Trans-Union, Equifax and Experian (formerly TRW) are the three national credit reporting agencies that keep records on consumers. The reporting agencies work with lenders, creditors, insurers and employers to update and distribute your information to the appropriate institutions. Here's an example of how the system works:
1. When you apply for a new credit card the creditor requests a copy of your financial history from the reporting agencies. This causes a "hard inquiry" to be recorded on your credit report.
2. The creditor uses your credit reports and scores along with income and debt information to determine what rates to offer.
3. You start to use the new credit card and the creditor reports your activities to the credit reporting agencies about every 30 days.
4. The credit reporting agencies update your credit report as they receive new information from creditors or lenders.
5. Your credit profile changes based on your financial activity. The next time you apply for a credit card or loan, the process repeats.
Can I correct Credit Reports Myself
Is it Legal to Dispute Credit Report Items
Why would your disputes succeed where mine failed?
How are Credit Score Affected During the Repair Process
The Consequences of Closing Accounts
