Your Credit Score
Your credit score follows you silently throughout your whole life. It is used by all lenders and credit grantors and is recorded and monitored by private agencies worldwide.
We are all rated using a variety of methods and this is then shared with legitimate lenders and credit granting companies.
We all have a social insurance number, birth date and name. This is how you are tracked by the three leading credit reporting agencies.
Experian (mainly used in the United States)
Each of these organizations will normally have a record of you if you are based in the USA. If in Canada, Equifax and Transunion are the normal reporting agencies.
Equifax and TransUnion are the two main reporting agencies in both countries. However, you want to request your annual report from all if you live in the USA or Equifax and Transunion if in Canada.
What is good credit and what is bad credit?
You may have guessed that if you pay your bills on time as promised you will have good credit. If you fail to pay your bills on time and have late payments or missed payments you will have bad credit.
You are right, these are the two factors used in determining your credit score especially in the last 12 months of your credit history but not the only factors taken into consideration.
You may never miss a payment or have never been late, but if you are at or over your credit limit and you have thousands of dollars of outstanding credit you can be rated as a bad credit risk.
Paying your bill on time as promised is important but there are more steps to consider when maintaining and rebuilding your credit. You need to work on managing your credit and your credit limits. By doing so you will maintain your good credit score and can also increase the speed your credit will be rebuilt.
If you fail to make your payments or have a habit of being late you will have a bad credit score. If you constantly go over your credit limit or hover around it. You will have a lower credit score and a tough time getting or keeping credit.
Bad credit implications
With poor credit management and maintenance you will suffer now and in the future. Bad credit can result in not being able to get certain job opportunities. You can suffer embarrassment from friends, family and it can and will restrict your future opportunities in life.
Your dream of a new car or new home can disappear in only a few short months if you fail to manage your credit.
The good news is that it can always be rebuilt but this takes time, that normally means anywhere from 12 to 24 months. In some cases longer depending on how bad you allow your situation to get.
Where do credit agencies get my information?
The first place is from your application when you apply for credit. This is the initial starting point for all 3 agencies. This information is shared by the lender, credit card companies and with the credit bureaus/agencies when you apply for credit.
Their information is kept current through your applications and through public records. The local courts and provincial or states government agencies make your public information available to anyone that wants to search for it and has reason to need it.
If you have had a collection or judgement registered against you, this is public knowledge and is made available to anyone that wants to search for it.
The major lenders and credit grantors along with collection agencies will send their credit files electronically to the reporting agencies/bureaus. They do this every month to report your account numbers, outstanding balances, and credit limits.
They use a 9 point scale system for reporting your current and past status. They do this for both your installment credit accounts and your revolving credit accounts.
Installment accounts are for car loans, mortgages or personal loans. Revolving accounts are credit cards, gas cards and store credit accounts.
The scale is based on (I) for Installments or (R) for revolving accounts
R/I 0: Account is too new to report or recently approved but not used
R/I 1: Account pays on time or within 30 days of billing. Pays as agreed
R/I 2: Account is paid in more than 30 days, but less than 60 days or one payment is due at this time.
R/I 3: Account is paid in more than 60 days but less than 90 days or is two payments late.
R/I 4: Account is paid in more than 90 days but not more than 120 days or is three payments late.
R/I 5: Account is at least 120 days past due. It is not yet rated as a collection
R/I 6: This code has no meaning as it really doesn’t exist
R/I 7: This means the account payments are being made under a consolidation order or debt repayment program.
R/I 8: This means repossession or voluntary return of the merchandise has taken place.
R/I 9: This stipulates a bad debt and it has been placed for collection or the account has been skipped with little to no chance of collection.
Every account is rated on the above system with each credit reporting agency. Each agency may report accounts differently as it all depends on when the last update was made.
What is a FICO or BEACON score?
The BEACON or FICO score was developed by the credit grantors to help in a quick rating score. The lowest being 300 to 400 and the highest being 850 to 900, it depends on your country and which agencies you are dealing with.
The score provides the lender or credit grantor with a snapshot of your credit rating. The higher your score the better the risk and the easier it is to get credit.
The score is figured using algorithms which take into consideration a number of factors. All these are calculated and a score is then made available for each report requested.
How long do ratings good or bad, stay on my report?
This can vary with each report agency but in general the following is a guideline. Please note this is an ever changing guideline and should not be used without confirming with each credit reporting agency. They are happy to answer your questions.
Account History: Your past has a large influence on your future. The
Credit request for your file information: A credit request history will automatically purge or disappear normally after 3 years from the first date of the inquiry.
Credit History and Banking History: All transactions will purge or disappear normally after 6 years from the date of the last activity or payment. This is only on the accounts that are reported. Some agencies do not report all account.
Orderly Payment of debts or credit counseling: These types of reports normally only stay on for 3 years from the last payment date.
Consumer Proposals: When you have completed the proposal and it is fully paid it will be registered and this normally reports for 3 years from the date of payment
Judgements, Garnishments and Seizures: These normally stay registered for 6 to 7 years from the date they were originally filed
Bankruptcy: These will report for 6 to 7 years from the date the bankruptcy is officially discharged. All accounts listed in the bankruptcy will also report for the same time period. If a person has had multiple bankruptcies these will report up to 14 years along with the debts that are part of the bankruptcy.
Collections Accounts: These will report for up to 6 years from the date of the last activity.
Secured Loans: These report for up to 6 years from date of last activity
Please note all these situations are capable of changing without notice. This information is what was available at the time of this writing. If you want to confirm this information please call your credit reporting agency.
Please also note that certain provinces in Canada and states in the US may allow for a longer reporting period. You must check with the credit reporting agency in your area to confirm.
It is highly advisable that you go to each credit reporting agency and review their procedures and online information as it is possible things will change in our ever changing world.
I highly recommend that you at least log on to each site so you are familiar with them.