Who Looks at your credit, anyway

The Experian credit reporting format is very straight-forward, and does not use any code systems. It is written in plain English, clearly describing each field and entry.

Who Looks At Your Credit, Anyway?

Lenders look at your credit before considering your application. Your entire credit history is graded according to a credit risk score that is determined by various mathematical formulas where numerical values are assigned to all the fields in a credit report. The most common type of credit risk score is the Fair, Isaac (also known as the Isaac, or FICO) score.

Whenever you apply for credit (a loan or a credit card), the application form usually gives the lender permission to retrieve your credit report from a credit bureau. Once the lender has your credit report, he then measures your creditworthiness. Many lenders use a short-term

debt

to income ratio in which your current short-term

debt

payments (excluding long-term

debt

such as a mortgage) are divided by your total annual income. A lender will refuse to give you a loan if your short-term

debt

is more than 20% of your annual income.

The other method that lenders use is to add up your monthly bills (excluding mortgage/rent and utilities), and divide by your gross income (before taxes). With this method, a lender looks for a ratio that is below 35%.

Lenders also look at various other factors, the most important of which are:

• Number of years at your present job. A lender likes to see job stability which assures him that you are a better credit risk.
• Your occupation, numbered from the least to the most desirable: (1) Manual work (2) Clerical Work (3) Self-employed (4)Managerial (5) Professional.
• The number and nature of negative entries in your credit history. The worst entries to have in descending order are: (1) Bankruptcy (2) Charge-offs (3) Collections (4) Court Judgments (5) IRS Liens (6) 120 Days Late Payment (7) 90 Days Late Payment (8) 60 Days Late Payment (9) 30 Days Late Payment.
• The amount of credit you currently have. Lenders look for how much debt you could incur if you maxed out all your credit cards, for instance. It is usually a good idea to have as few credit cards as possible, especially department store credit cards, which you cannot use outside the store.
• Saving and checking accounts.
• Telephone in your own name.
• Number of years at present address.
• Own your home.

This Section showed you the basics of credit - how it functions, and how it affects your own credit worthiness. You also know how credit bureaus work and what kind of information they pass on to lenders; and you also realize how important your credit is, and how it is scrutinized by lenders.

In the next Section, we shall begin going through the process of fixing your credit. This will be a step-by-step approach, so you will not have any confusion as to what to do next.

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Getting to know your credit report