Credit Bureaus, Credit Reports & Credit Score

Credit Bureaus, Credit Reports & Credit Scores:
When somebody (a credit-card company, a bank, a department store, a loan shark, some 12-year-old genius on the Internet) wants to get an idea about how much they can trust you financially, they go to a “credit bureau”, and get your “credit report”, and optionally also a “credit score”.

A Credit Bureau (also called a credit repository, or consumer reporting agency) is a clearinghouse for information on the credit rating (past performance and current situation) of individuals or firms. The three largest credit bureaus in the United States are Equifax, Experian and TransUnion. Each of these reporting agencies maintains their information separately, so the data you have on file may differ between them.

A Credit Report is information communicated by a credit-reporting agency that relates to a consumer's credit standing. Your report details your credit history as it has been reported to the credit-reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you've paid your bills on time. It tells lenders how much credit you've used and whether you're seeking new sources of credit. It gives lenders a broader view of your credit history than do other data sources; such as a bank's own customer data. It will also include any public records such as bankruptcy filings and tax liens.

Although each credit reporting agency formats and reports this information differently, all credit reports contain basically the same categories of information. Updates to this information come from information you supply to lenders.

Identifying Information.
Your name, address, Social Security number, date of birth and employment information are used to identify you. These factors are not used in scoring.
Trade Lines.
These are your credit accounts. Lenders report on each account you have established with them. Your average consumer has a total of 11 on record. Lenders report the type of account (bankcard, auto loan, mortgage, etc), the date you opened the account, your credit limit or loan amount, the account balance and your payment history. This last is what tells them how reliable you’ve been in the past, and therefore how reliable you’ll probably be in the future.
Fewer than 4 out of 10 consumers have ever been reported as 30 or more days late on a payment.
Only 2 out of 10 have ever been 60 or more days overdue on any credit obligation.
85% of all consumers have never had a loan or account that was 90+ days overdue, and less than 10% have ever had a loan or account closed by the lender due to default. This is good for you and me, ’cause we're partly judged on others’ past performances.
Inquiries.
When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquiries appear on your credit report. The inquiries section contains a list of everyone who accessed your credit report within the last two years. The report you see lists both "voluntary" inquiries, spurred by your own requests for credit, and "involuntary" inquires, such as when lenders order your report so as to make you a pre-approved credit offer in the mail.
The average consumer has had only one inquiry on his or her accounts within the past year.
Fewer than 7% had four or more inquiries resulting from a search for new credit.
Public Record and Collection Items.
Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies. Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments.
Some Other Interesting Statistics:

Credit Utilization - About 48% of credit card holders carry a balance of less than $1,000. About 10% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 54% of consumers carry less than $5,000 of debt. This includes all credit cards, lines of credit, and loans-everything but mortgages. Nearly 30% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.
Total Available Credit - The typical consumer has access to $12,190 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 8 are using 80% or more of their credit card limit.
Length of Credit History - The average consumer's oldest obligation is 13 years old, indicating that he or she has been managing credit for some time. In fact, we found that 1 out of 5 consumers who recently applied for credit, had credit histories of 20 years or longer. Only 1 in 20 consumers had credit histories shorter than 2 years.
CREDIT SCORE

A Credit score is a term often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model, which is used to “objectively” evaluate how much of a risk the bank / credit card company / department store would be taking if they let you have some of their money. They do this by comparing certain information in your report with hundreds of thousands of other past reports, and seeing how well they did.

FICO scores - Fair Isaac Corporation has developed a credit score that has become fairly popular, commonly known as FICO scores. Fair Isaac credit bureau scores are derived solely from the information available on credit bureau reports.

"That little three digit number - your FICO score - is the most important number you have when it comes to your financial future," said Suze Orman, Emmy award-winning talk show host and author of The New York Times best-seller, The Money Book for the Young, Fabulous & Broke. "Just about every financial move you make for the rest of your life will be somehow linked to your FICO score. Knowing and improving your FICO score is the most important way to make more out of your money."

In order for a FICO® score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information - and enough recent information – in your report on which to base a score.



The Median FICO Score in the U.S. is 723

As a general rule, those with a score above 650 will receive the lowest interest rate loans. Those who score in the 620 to 650 range may have to provide additional documentation and explanations to the lender to qualify for the same rates. Those with a score below 620 will likely pay a much higher interest rate for the same loan.

FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages reflect how important each of the categories is in determining your score.

Payment history 35%
Amounts owed 30%
Length of Credit History 15%
New Credit 10%
Types of Credit Used 10%
These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

Through the myFICO.com web site, introduced in 2001, you can use the company's FICO scores to manage your financial health. Just recently (May 4, 2005) Fair Isaac announced that its myFICO® consumer division and its partners have sold the 10 millionth FICO score to U.S. consumers.

Interesting myFICO Innovations
Key innovations over the past four years include:

2001: Fair Isaac and Equifax jointly set the nation's standard for score disclosure products with their introduction of Score Power®. Score Power packaged consumers' FICO scores from Equifax with their underlying credit reports and personalized explanations of their scores, including best strategies for improving them over time. Fair Isaac launched myFICO.com with that initial product on March 19, 2001.

2002: myFICO.com introduced a pair of innovations. Its FICO Score Simulator answered consumers' desire to learn how specific financial actions might impact their FICO score over time if other factors stay the same. myFICO.com also introduced a web tool matching consumers' FICO scores with current auto, home equity and mortgage loan rates in their states to help them understand their current credit potential. Both tools are still available free to visitors at myFICO.com.

2003: myFICO.com became the first web destination to provide consumers with FICO scores from all three national credit reporting agencies, and it remains the sole consumer source for all three scores today. Also, myFICO.com introduced myFICO Identity Theft Security, its unique solution for identity-theft detection that monitors hundreds of databases for changes to personal information that are often the earliest signs of identity theft.

2004: myFICO and Equifax announced Score Watch, the first product to continuously monitor subscribers' FICO scores and credit files and alert them to changes that could qualify them for better interest rates.

Free Credit Report is your right by law.




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