fix credit rating

Mike Singh asked:




All of us at one point or another have to refer to our credit reports. It can be for credit for a new dress, a new car and even a new house. It can be for applying for a new job. It can be for renting a new apartment. Indeed, there are many situations that require your report with your rating and score outlined in it.

Of course, your report also includes personal information such as full name and address, employer’s name and address and information regarding bankruptcy filings, court suits, foreclosures and short sales and trends in bills payment, to name a few. Credit bureaus collect all this information so as to calculate your score and rating.

Now, you will be asking what the difference is between a credit score and a rating since they appear synonymous. Yes, there are differences but the aims are basically similar – provide an objective gauge for third parties regarding your ability to make payments on time.

Credit Scores

These scores are your Fair Isaacs Corporation (FICO) score. This corporation developed the system used by all three major credit bureaus in the United States: Equifax, TransUnion, and Experian to calculate scores.

Your scores are expressed in the hundreds such that the lower the figure, the higher the risk. If you have a score of 350, you are a high risk debtor while a score of 850 means that you are a very low risk.

Also, it must be noted that the three major credit bureaus use different sets of criteria with varying weights to determine score although the same set of report information is used. You will most often be issued three different credit scores! Still, the three credit scores are often approximate their figures so you basically fall within a specific category of low, medium and high credit risk.

The criteria used to determine credit score include credit payment history, time length of credit history, current debts, frequency of applications for new credit and credit type mix. Again, it must be emphasized that the credit bureaus will assign different weights to each criterion. However, it is safe to assume that previous credit performance and current level of indebtedness get the most weight at about 30 percent each while the types of credit available and the time credit has been in use gets 15 percent each and pursuit of new credit is at 5 percent.

Credit Rating

Aside from the scores, most countries also use rating using a scale of 0 to 9. There are two types of credit rating signified by the addition of the letter “I” for installment credit such as home or auto financing and “R” for revolving credit like credit card debt.

Unlike the credit scores where the three bureaus collect the information from many creditors, the rating scheme is such that each creditor will provide its own rating for you. Thus, you may have an R1 in Visa but an R5 in MasterCard because you neglected to pay the latter in favor of the former.

Indeed, you have to be aware of your credit score and rating because these numbers have a very real impact on your life.

Suzanne