While the actual agency that records your Credit Rating differs, (with the big three agencies being Experian, Equifax and Trans Union) their calculation
systems are all very similar.
These companies record each time you take out a loan or repay any debt, and will provide this information to any company which considers lending you money.
Nearly every time you get turned down for a
credit card or any other loan, your rating is most likely the reason.
This is especially true with companies giving out small loans, as they
are far more likely to rely completely on this rating than to bother
checking your income. And don’t forget that bad credit often times
translates to a higher interest rate.
These loans include mortgages and car loans, which may mean you might end up being unable to buy a house because
How It Is Calculated? The most common method for producing your rating is through ‘FICO’, named after the Fair Isaac Corporation. The following factors are prioritized in this order: whether you’ve paid past debts, your current debt level, your credit history, the types of money lending you use, and the number of times your rating has been checked recently. As might be expected, things that happened more recently are given more weight than events far in the past.
First, all debts you
currently have are included in your credit score. Further, there is a
history of all the debts you’ve had in the past ten years or so, with a
special emphasis put on anything that has gone wrong. For example,
defaulting (not paying) on any debt will permanently scar your credit.
Similar negative results will occur if you borrow large amounts of money without paying anything back, along with spending to your limit on credit cards. Also consider the fact that you may be linked to the credit of others in your household, so their poor credit ratings could hurt you.
One advantage which you
have with these companies keeping records on you is that you have a
right to see these files. By simply sending a nominal fee, you can see
their full credit report, and if anything is wrong, you can mail them a
revised report with a letter describing any errors they may have.
If you were recently denied credit you are entitled to a FREE copy of it by simply calling one of the three major credit reporting agencies and requesting it. Further, in some countries you may have the option to sign up and receive your credit reports regularly (occasionally for free), an option you should strongly consider exercising.