Credit Reports
Credit ratings are determined differently in each country, but the factors
are similar, and may include:
* Payment record - a record of bills being overdue will lower the credit rating.
* Control of debt - Lenders want to see that borrowers are not living beyond
their means. Experts estimate that non-mortgage credit payments each month
should not exceed more than 15 percent of the borrower's after tax income.
* Signs of responsibility and stability - Lenders perceive things such as
longevity in the borrower's home and job (at least two years) as signs of
stability. Having a respected profession can improve a credit rating.
* Re-Aging - Through re-aging, a credit history is re-written and you are given
a fresh start on that particular account. This can dramatically improve the
credit score. In 2000 the Federal Financial Institutions Examination Council (FFEIC)
clarified guidelines on re-aging accounts for delinquent borrowers.
* Credit inquiries – An inquiry is a notation on a credit history file. There
are several kinds of notations that may or may not have an adverse effect on the
credit score. Soft pulls don't affect the credit score and are characteristic of
the following examples:
A credit bureau may sell a person's contact information to an advertiser
purchasing a list of people with similar characteristics, like homeowners with
excellent credit. A creditor can check a person's credit periodically. Or, a
credit counseling agency, with the client's permission, can obtain a client's
credit report with no adverse action. Each of the preceding examples are
commonly referred to as a "soft" credit pull.
However "hard" credit inquiries are made by lenders. Lenders, when granted a
permissible purpose by a borrower for the purposes of extending his credit, can
check his credit history. Hard inquiries from lenders directly affect the
borrower's credit score. Keeping credit inquiries to a minimum can help a
person's credit rating. A lender may perceive many inquiries on a person's
report as a signal that the person is looking for loans and will possibly
consider that person a poor credit risk.
* Credit cards that are not used - Although it is believed that having too many
credit cards can have an adverse effect on a credit score, closing these lines
of credit will not improve your score. The credit rating formula looks at the
difference between the amount of credit a person has and the amount being used,
so closing one or more accounts will reduce your total available credit. And the
lower the percentage of available credit, the more the credit score will drop.
The credit formula also factors in the length of time credit accounts have been
open, so closing an account with several years of history is another avoidable
credit mistake.