Creditors keep their evaluation standards secret, making it difficult to know just how to improve your credit rating. Nonetheless, it is still important to understand the factors that determine creditworthiness. Periodically reviewing your credit report can also help you protect your credit rating from fraud – and you from identity theft.
Credit Evaluation Factors
Many factors are used in determining credit decisions. Here are some of them:
- Payment history/late payments
- Charge-offs (Forgiven debt)
- Closed accounts and inactive accounts
- Recent loans
- Cosigning an account
- Credit limits
- Credit reports
- Debt/income ratios
Obtaining Your Credit Reports
Credit reports are records of consumers’ bill-paying habits but do not include FICO credit scores. Also referred to as credit records, credit files, and credit histories, they are collected, stored, and sold by three credit bureaus, Experian, Equifax, and TransUnion.
The Fair Credit Reporting Act (FCRA) requires that each of the three credit bureaus provides you with a free copy of your credit report, at your request, every 12 months. If you have been denied credit or believe you’ve been denied employment or insurance because of your credit report, you can request that the credit bureau involved provide you with a free copy of your credit report – but you must request it within 60 days of receiving the notification.