As you are probably aware, your credit score is a 3 digit number that is based upon your borrowing history and your debt profile. Lenders and creditors use your credit score to determine if you are eligible for a loan. Your credit score tells creditors about your borrowing behaviors such as paying your bills on time and if you borrow more than you can pay back.

Knowing your credit score will help you negotiate a better loan amount and rate when you are applying for credit. When you order a consumer credit report, the credit score will not be included. The credit score must be purchased separately.

Credit scores are being used for other purposes such as employment checks and insurance. Some insurers are using the credit scores to determine if an individual is more likely to make claims against their insurance policies. Many insurance companies believe there is a connection between poor credit scores and filing multiple insurance claims. If you have a low insurance rate, it could affect the interest rates you are charged on loans and the cost of insurance.

Credit scores are managed by the credit bureau. The credit bureau collects all the information about you and provides this information to lenders and other sources. A lender will determine if you are worthy for a loan based on the information they are provided with by the credit bureau. All the information provided to the lenders will not only determine the loan, but it will affect your interest rate and other terms of the loan. Commonly lenders use a strategy called "risk-based pricing" as a set rate for different borrows. If you have poor credit due to bad repayment history, bankruptcy, foreclosures or liens, then you will pay a higher annual interest rate than consumers who have good credit.

What information does the credit bureau collect?
The credit bureaus collect personal and financial information on many consumers. Typically the credit bureau has formed a relationship with different "data furnishers" who provide them with all the necessary information they need. The data furnishers are creditors, lenders, utility companies, debt collection agencies, and courts. Often employers will be contacted to update the work history on some credit reports.

The data furnishers will report their payment experience to the credit bureaus on a monthly basis. All the data that is collected will be aggregated into the credit bureaus data files. The information will then be evaluated and will be made available to customers when requested.

Different credit bureaus use different methods in order to determine the credit score of the individuals. Most of the credit bureaus rely on a mathematical algorithm to determine the credit score of an individual. The credit score is simply a number assigned to a person to determine their level of credit risk. The score helps lenders know how rapidly you will pay off the amount of money you borrow and if you borrow too much money.

A wise idea is to review your credit report at least once a year to make sure there aren't any errors on the report. You are entitled to receive a free credit report from the three consumer reporting agencies, Equifax, Experian, and TransUnion. If you would like to order a copy of your credit report, you can do so with one of the following methods:

1. Online at www.annualcreditreport.com
2. Via telephone at 877-322-8228
3. By mail. You will need to print a request form from the annualcreditreport.com website and mail the completed form to the address listed on the form.

The credit bureaus broken down
Again, the 3 major credit bureaus are Equifax, Experian and TransUnion. Each of the credit bureaus report your financial information to lenders, allowing them to make a sound decision.

Equifax was originally founded as a retail company in 1899. By the 1960's it had grown into one of the largest credit reporting agencies in America, holding millions of records on consumers. Equifax typically operates as a business-to-business company, but has recently begun working with consumers to improve their credit scores. Equifax sells business and personal credit reports, data, software, analytics, and demographic data. On your Equifax credit report, you can expect to find detailed information about your personal credit and payment history. This report will demonstrate how you have honored your financial obligations and how you pay your bills and loans. Utility companies may also report information to Equifax to give them a larger financial report about you. In 1999, Equifax began providing products to consumers that help them monitor their credit history. With the overwhelming credit fraud problems, Equifax found a way to alert individuals if they suspected the individual was a victim of credit fraud or identity theft. Many consumers like working with Equifax because they offer a "credit lock" service that prevents or limits the number of inquiries lenders can make on your credit report. The credit lock system allows you to establish a PIN number make your credit report available to only lenders who have your PIN.

Experian was founded in 1980 in the United Kingdom. Experian provides credit reporting services to several countries around the world. Experian collects information on people, businesses, motor vehicles and insurance. Currently, Experian holds information on 215 million individuals and 450 million vehicles. You can thank Experian for those credit card offers you receive in the mail each week; they provide the address information for more than 20 billion promotional mail items to more than 100 million households each year. Experian also markets the credit reports to consumers and will provide consumers with one free credit report per year. Typically Experian will market credit reports to consumers by using outside for-profit credit reporting services like FreeCreditReport.com.
TransUnion is the last of the 3 major credit bureaus. TransUnion was created by the Union Tank Car Company in 1968. Originally TransUnion was established to be a holding company for Union Tank. In 1969, TransUnion began its credit business when they purchased the Cook County credit bureau. Currently TransUnion operates in 25 countries and has 250 offices in the United States. Like Equifax and Experian, TransUnion receives information from different lenders and the information is collected into a data record. The data record is then "pooled" into an account with other individuals who are in your same financial position and you are assigned a credit score based on this information.

How do I contact the credit bureaus?
Be sure to check all 3 credit reports if you have found inaccuracies with one bureau. Here are the addresses to the 3 major credit bureaus:

Equifax
P.O. Box 7404256
Atlanta, GA 30374

Experian
P.O. Box 2002
Allen, TX 75013

TransUnion
P.O. Box 390
Springfield, PA 19064

You can contact each of the credit bureaus individually to obtain a free copy of your credit report but this can only be done once a year. There are other ways to obtain a free credit report, they are outlined below:

•     You are on welfare
•     You had an application denied due to information on your credit report. These applications can include employment, insurance, and credit applications. Once you are denied, you have 60 days from the date of denial to ask for a copy of your credit report. The company who denied your application is required to send you a notice that will include contact information for the credit bureau that provided the company with your credit report.
•     You are a victim of identity fraud and there is inaccurate information on your credit report.
•     You are unemployed and you are planning on looking for work within the next 60 days.
• Under the Fair Credit Reporting Act (FACTA) you are entitled to receive a free credit report and you are entitled to dispute information that is inaccurate. If you have any problems with one of the credit bureaus changing inaccurate information, you can contact the Federal Trade Commission and file a complaint, which will lead to a court appearance if the credit bureau does not respond. The Federal Trade Commission has oversight of all the credit bureaus along with The Office of the Comptroller of the Currency. The information furnished to the credit bureaus will be supervised, regulated, and chartered by the FTC and the OCC to ensure appropriate and accurate information is being reported.

There are other credit bureaus that are gaining momentum and competing with the 3 largest credit bureaus. When you are applying for a loan, be sure to ask the lender which credit bureau will be furnishing the credit report. There are several for-profit credit bureaus that are not regulated by the government and therefore are not required to give you a free credit report once a year. Some of the competitors to the 3 credit bureaus have formed a trade organization called the Consumer Data Industry Association (CDIA). CDIA lobbies in Washington to change the current reporting standard. As of now, CDIA is still lobbying, but to no avail as the reporting standards have not changed.