subject: Check Your Credit Scores Regularly [print this page] One must not have reservations about asking for a copy of his credit report. Evaluating companies do not take it against a person if he regularly requests for a report about his score.
In fact, people are encouraged to seek for updates about their credit standing because doing so helps check whether there is erroneous information that was used as basis for computing the score.
A credit score indicates how fit a person is to pay a loan he is applying for. It may also show how able an individual is to engage in other financial transactions. It is computed using a set of criteria, which includes the following: payment history (35 percent), amount of debts (30 percent), length of payment history (15 percent), types of accounts used (10 percent), and new credit (10 percent).
The first criterion is about how well an individual was servicing his liabilities in the past. One will be rated poorly in this aspect if he had been delinquent in meeting his financial obligations, including but not limited to monthly utility bills.
The second criterion deals with a person's level of debts. If servicing existing debts eats a huge portion of one's earnings, then the individual may be rated poorly. A high debt-to-earnings ratio indicates that one can no longer afford to get any new loan.
The third is concerned about how long a person's payment history is. People who have relatively short histories will give evaluators only a few bases to assess their standing. On the contrary, long histories will give them more information that will help calculate people's ratings.
The fourth is related to the banking facilities a person enjoys. Someone who has several loan accounts has more flexibility in making payments because each usually imposes different payment terms. Flexibility makes a person more able to pay off debts.
The fifth and the last is the latest loan an individual is applying for. If approved, this new loan will add up to one's overall debt and thus affect his grade.
Evaluating firms get information from various sources to compute the scores. Sources include banks, utility service providers, and insurance firms. If a person is delinquent in his financial obligations, these companies may notify the evaluating firms, adversely affecting the concerned person's rating.
However, not all information gathered by the evaluators is correct. There are instances when these firms get erroneous data. For instance, they may have mistakenly recorded that a person still has not paid his insurance premiums when in fact he already did.
Because of this possibility, it is wise to regularly check one's score and the accompanying report in order to request for an immediate correction, if necessary.
by: Leo Chu
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