Credit ratings are developed by private companies called credit bureaus or credit reporting agencies and are made available upon request to most businesses where you ask for credit. These reports let them know whether you are a good credit risk. Although the records often include confidential and personal information, by law they cannot include information regarding your marital status, race, religion, color, ancestry, ethnic origin, sexual preference, or political affiliation, except as required by government record-keeping.
Because your credit rating is so important, the law allows you to check personal or financial information in your file at the credit bureaus. Consumers can request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies. AnnualCreditReport.com provides consumers with the secure means to do so. There are also free secure websites where you can check your credit regularly, i.e. CreditKarma.com®. Also, several credit card companies now offer free credit score and credit monitoring as part of their services.
You also can request your credit report by mail by filling out the request form and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You also can order your free report by calling (877) 322-8228. Ordering reports by phone or by mail is recommended to avoid impostor websites and identity theft. If you dispute in writing any of the information in your file, the credit bureau must investigate and correct the mistake if it finds an error.
If the bureau decides that there is no error but you still dispute the information, you may file a brief statement explaining your side of the story, and the credit bureau must put this information in your file. You also are entitled to be given the names of persons or companies who recently received your credit rating.
It is important to use credit wisely and, if possible, build your credit rating over time. There are several factors that help to make up your credit rating. The most important is your payment history. You are expected to pay your creditors on time every month. If you are late in paying your creditor, you will usually have up to thirty days to make your regular payment before you are reported to the credit bureau as being late on your payment. Generally, the creditors will report whether you are thirty, sixty or ninety days late on a payment. Every late payment negatively affects your credit rating and the later the payment, the more severe the impact on your rating.
Another important factor is credit utilization — the percentage of credit being utilized. It is important that you obtain credit limits that allow you to use only a percentage of your total available credit. For example, if you have three credit cards with $1,000 credit limit on each, you should avoid high credit balances and try to manage your credit so that your debt balance on each card is as low as possible (preferably, pay off your balance each month and never exceed 50 percent of your available credit on credit card accounts). If you must use your credit to make a purchase, try to utilize the cards with the lowest interest rates first.
The next factor to consider is “derogatory remarks.” Creditors report information regarding actions taken on your credit account, such as foreclosures, civil judgments, tax liens, garnishments, loan defaults, bankruptcy, or if your account has been placed into collection because of failure to comply with the terms of your credit agreement. These “derogatory remarks” can have a significant impact on your ability to obtain new credit. Other less important factors that may also affect your credit rating include: the age of your credit history; the total number of open and closed accounts; and the number of credit inquiries. Checking on your own credit is not considered a “credit inquiry” for reporting have a negative impact on your rating. Be careful! Applying for multiple credit cards at the same time will be considered a “credit inquiry” and will have a negative impact on your credit.
If you are successful in handling your credit, in the future you will be able to borrow money at lower rates of interest and have other avenues open to you. If, however, you develop a bad credit rating, that bad credit rating has a number of consequences, such as: you can be denied future credit and/or loans; your existing credit cards and/or loans can be terminated; you may not be able to rent or buy a house or car; and, prospective employers may not hire you because they view you as being unreliable or untrustworthy. You are starting with a “clean slate” as far as your credit is concerned. Be careful, make wise use of these opportunities, and do not bite off more than you can chew!
Don’t ever “lend” anyone your credit. Do not take loans out on behalf of another person with the expectation that they will repay it to the creditor. It is your responsibility to pay your debts and if the third party fails to pay on time, then your credit will suffer – not theirs. Avoid “co-signing” loans with third parties (even family members) unless it is to obtain an interest in specific collateral (ie., you are purchasing a 50 percent interest in a house, car, boat, etc.)