One Credit Rating Agency – One Score?
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There are several Credit Rating Agencies (Experian, TransUnion and Equifax) and you will therefore have a credit score with each Agency. Agencies obtain information about your credit record from creditors. Therefore, whoever you borrow money from may provide a report for each account to each Credit Agency.
You may have an account at more than one institution, retail store or car dealer for example, but they won’t always report to the same credit agency, or even on a monthly basis. Hence there will be discrepancies regarding your scores at different rating agencies. This results in you having more than one credit score and different credit scores.
Credit Scoring Facts
Because of the monthly reporting habits of respective creditors, three different credit agencies may have three different sets of records about your spending habits. Some creditors report to agencies monthly or irregularly. They may also submit information about their customers to one agency and not another.
In addition, the credit agencies don’t have the same software. Your credit report and scores are therefore calculated on different variables, based on the information supplied. Because the information and software calculations differ, your credit scores will not be the same. Different agencies can only determine your credit worthiness based on the information received.
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Credit Score Myths
By law you are allowed to request one free credit report per year but don’t assume that this will include your credit score. If you want to know what this is, you will need to purchase it. Alternatively, the next time you apply for credit you can ask the creditor to tell you what your score is. Another credit score myth is that if you are debt free, you will have a good credit score.
Being debt free simply means the credit rating agency won’t have any information about you on which to perform an assessment and provide a rating. Your spouse and you also don’t share ratings. These are performed individually.
If you have co-borrowed and become divorced, this will definitely impact your rating. Just because you are divorced doesn’t mean you are suddenly debt free if you have a joint loan. Similarly, bankruptcy does not permanently ruin your credit score. There are ways and means to rebuild your credit record.
The Bottom Line of Credit Scoring
You do have to open accounts to obtain a good credit record. As detailed above, credit ratings are based on information supplied by creditors. Having accounts doesn’t mean that you need to create a life of permanent debt.
A good credit score reflects your ability to manage money well. It means you pay bills on time, you are reliable and trustworthy enough to lend money to. It means creditors have a good expectation of being repaid. Repayment includes paying bills on time.
In short, a good credit score simply means you know how to manage money and are a good risk. Having more than one credit score and credit scores that differ does not change this.
You can start a tracking and monitoring your credit right now!
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