How Credit Rating Agency Reports Are Manipulated

Credit rating agency profiles are used by banks and mortgage lenders to decide who will make a good enough risk to lend money to, and when the choice is made to lend money they will be used to determine the prevailing interest rate. The system which is used by the three major credit rating agencies is largely accepted by the banking world as being the most effective, largely because it is cheap and easy to run. There is one banking group which refuses to use it, and there are many consumer advocates who dislike the system.

If you are wanting to get the most benefit from the banking system, it is important to understand how this credit scoring system works. There are several factors which are included in a numeric algorithm which is used to assess the probability of someone repaying money which is loaned to them. The most important factors are repayment history and credit utilization. These together account for over half of the points which are used in the scoring system. The other parts of the system are less important, but they can still be enough to tip the scales one way or the other in a tight run issue.

The way the reporting system works is simple. When you have a payment to make, the recipient of the payment will report to the agency whether it was made on time, made late, or completely defaulted upon. These reports are used to create the number which is a percentage of successful payments. The utilization number works slightly differently, in that it measures the percentage of the available credit which is being used at any given time. This is a vital factor in the bank deciding whether or not lending more money is the right course of action.

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Each credit rating agency will collect these reports and make the available to anyone who has a valid reason for seeing them. This includes you as the individual owner of the file. There is normally a charge applied for this, but the Federal Government has applied a law allowing everyone the right to see their credit report from all three of the major reporting agencies once a year without the need to pay to do so. It is best to keep up to date which what the agencies say, especially if you will have a need to borrow money in the near future.

If you want to build up a good report from the agencies, there are several steps you can take. The first step is obviously to pay any bills which come in promptly and without fuss, and this is essential to avoid bad markers being placed on the file. Then, it is a case of increasing the numbers of repayments which you have to make. To do this, you have to take on more credit. The only way you will get more credit if you don't already have a high rating is if you are prepared to use high interest credit cards.

These cards will still report to a credit rating agency every time you have a repayment to make. The best solution is to use the card for as many of your everyday shopping needs as you can, and then to pay off the balance every month without incurring interest. As your number of successful repayments increases, you will then be able to take on other forms of borrowings. This increases another index which is used as part of the score. If you keep borrowing money and paying it back, you will soon increase your rating with each credit rating agency.

 

 

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