The Credit Report Score System

One of the unique attributes of the American consumer credit system is that it is open to all. Anybody can apply for credit. The approval of credit, however, depends on a number of factors, among which the major important ones are your credit report and fico score. Nobody is responsible for your credit but you. To guard against the huge potential for abuse, the credit report score system has been designed in such a way as to provide financial institutions with a means to measuring the probable risks associated with loan financing. Credit report scoring is, therefore, inextricably linked to the extension of credit by banks and other finance houses.

If you have a credit card it is your choice whether to use the credit card wisely or not. If you abuse the system things will go against you. On the other hand, if you choose to use your credit card wisely and view it as a precious commodity, you could benefit in a way that you couldn’t possibly even imagine. You are therefore the architect of your own credit report score.

Being smart about credit use has turned some ordinary folks from very humble backgrounds into millionaires over the years. The smart use of credit facilities has a positive effect on your fico score and therefore would enable you to apply and get approved for low interest rate credit cards and loans.

About The Credit Report

When you apply for any type of credit, for example, car loan, personal loan, credit card, mortgage, department store card, apartment lease or even life insurance, a record of some information is kept about you. This record usually contains details of your name, address, social security number, the kind of credit you applied for, how you maintain payment of your bills (whether you pay your bills on time or whether you have defaulted on your loan payments), whether you have ever filed for bankruptcy. This file chronicles the details of your credit activities and the information in this file is what is called a Credit Report.

Usually, the sum total of your credit activities as reflected in your credit report is condensed into a three-digit numerical figure called a credit score or fico score. In fact, most lenders look at your credit score first and base most of their decision on your credit score even before scrutinizing the details of your credit report itself. To get ahead in this game of credit and finance it is crucial that you order your credit report.

Credit Reports are kept by a Credit Reporting Agency, also called a Credit Bureau, among which the major ones are:

Experian (formerly TWR), P. O. Box 2002, Allen, TX 75013. Tel: 1-888-397-3742

Trans Union, P. O. Box 1000, Chester, PA 19022. Tel: 1-800-888-4213

Equifax, P. O. Box 740241, Atlanta, GA 30374. Tel: 1-800-685-1111

Applying for a Loan

When you apply for a loan the lender contacts one or more credit bureaus for information about you. This information is sold by the credit bureau in the form of a credit report to the potential lender who then decides whether or not to grant the loan request based on your fico score and the details of the information contained in your credit report.

The role of the credit bureaus is unique in the financial services industry in that they maintain a huge database of consumers' credit reports. A credit bureau does not give out loans, it does not approve loans and it cannot make recommendations for loan approvals. All a credit bureau can do is report the history of how you have used your credit. Like a check-clearing house, a credit bureau thus only acts as a clearinghouse for credit history information.

It is estimated that credit bureaus might actually have in their databases credit report files on over 180 million consumers currently in the United States. Since credit impacts every aspect of our lives in the United States, it is advisable that you know what is contained in your credit profile by making a request for your credit report.

Ways to obtain initial credit

Because a credit file must already exist on you in order to obtain approval when you apply for credit, it makes it difficult for first-timers to establish credit. The best way to establish credit initially is to find a willing partner to co-sign a credit application with you. What this means is that someone other than you is prepared to take a risk to help you obtain credit on the strength of his/her credit record. If you therefore default on this loan, you are basically putting the credit history of your would-be helper in jeopardy. A lot of people therefore are unwilling to render this help because technically he/she is as much liable for the payment of the loan as you are.

Another way to obtain credit initially is to open a bank account, preferably a checking account, and after a few months of operation you go in for a small personal loan from your bank. You then make your loan repayments from this checking account to the bank for at least one year in order to establish a repayment record. From here, you can now apply for a credit card or some other form of credit in order to have a credit history.

Yet another way to obtain initial credit is to make a purchase at a department store and apply for the store's credit facility. Most stores will extend initial credit for amounts up to about $500. By making sure that you pay the monthly bill on time for a period of at least six months would establish your first credit profile. After you finish paying off your first credit you start the process again until such time that you have three or four accounts, then you apply for a credit card.

Ultimately, the desire is to build up a credit profile such that when a financial institution pulls up your credit report, there is no negative information in it, your credit report score is high, and that would make banks and other financial companies willing to advance you low interest rate credit cards and loans.

The surest ways of improving your credit score is to pay down your debt, with the ultimate goal of achieving financial independence by eliminating all your debt, free online resource destination for credit report scores. This is sometimes difficult in real life - free online resource destination for free credit report scores.

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The contents of this website are for informational and educational purposes only and do not constitute an attempt at providing financial advise. Please consult a competent and reputable financial advisor if you are seeking financial advice.