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May 15th, 2007
Often you will hear about your credit card reporting to a credit bureau. What does this mean? Maybe you have thought about applying for a card that reports to credit bureau, but are not sure what happens. Well, let’s find out..
Defining Credit Bureaus
Credit bureaus are companies that track, report and provide credit information for individual borrowers. Lenders use this information to decide the risk of the particular borrower and what interest rate they should be assigned. The main tool credit bureaus use to track information on individual borrowers is the credit score. Credit bureaus are in charge of following all the bad information (and hopefully good information) a company may report about your financial situation.
How Do They Determine My Situation?
Credit bureaus base your credit score on the following criteria:
- 35 % of the total score is based on your history of paying off your bills. Whether you have paid your bills on time, early or late all factors into your payment history. It is the biggest factor in determining your credit score.
- 30% of the total score is based on your debt ratio. Your debt ratio is how much debt you have per month, divided by your monthly income. This determines the total amount of credit you have available to you. If your debt ratio is about 50%, that is not very good. The higher your debt ratio, the lower your credit score will be.
- 15% of the total score is based on how old your credit card accounts are. Credit bureaus look for older accounts as a sign of stability. So it is better to have older accounts on your credit report then it is to have a bunch of new ones.
- 10% of the total score is based on how often you are applying for new credit cards. If you apply for a bunch of credit cards in a short span that will lower your credit rating. The fewer credit cards you have, to a certain degree, the better.
- 10% of the total score is based on other factors.
What are the Main Credit Bureaus?
There are three main credit bureaus in the United States: Equifax, Experian and TransUnion. All three of these bureaus handle your credit score, report to lenders and keep track of bad marks on your credit. To see your credit score you can also access your credit report from them. Credit reports will lower your credit score, minimally, but you can get one free credit report a year by going to www.annualcreditreport.com. This website was set up by all three of the main credit bureaus in the United States. So make sure you stay on top of those credit bureaus, and let them know you want them to report the good, as well as the bad.
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