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Credit Reporting Cards and Credit Worthiness

4 February 2009 by CreditCardsCo™

As of today, every U.S citizen above 18 years of age is likely to have a credit report and a score at one or more of the 3 major national credit bureaus. These bureaus collect financial information from institutions and public records as needed for a report. Those information you can be sure they collect are about your bank accounts, employer information, credit cards, loans, and medical bills. A track record on how you've handled credit facilities is established based on the information collected.

This makes it so easy for any lender to determine the credit worthiness of a potential customer. They only need to request a copy of your credit report which'll include a credit score.

In short, having a good credit report is crucial as consumers having low scores are often denied credit on this basis.

Credit Cards

Financial institutions you do business with are mandated by law to send out information about your transactions to at least one of the major credit bureaus. These credit bureaus are permitted to keep negative transactions on your report for up to seven years. This means a delinquent card account or overdue credit facility will likely taunt you for much longer than you think.

Most people feel the impact of a negative report when applying for a mortgage or credit cards as firms discriminate against those persons having less favorable credit reports, offering them higher interest rates and lower credit.

Shopping Cards

A whole lot of cards are categorized as shopping cards. From prepaid gift cards to cards offering you a form of credit, shopping cards are generally usable with a single or bunch of affiliate retailers. Though it limits spending power, consumers having limited credit will value the possibility of securing credit through a shopping card since the qualification requirements for these cards are usually lowered to encourage all consumers from those having below average to excellent credit.

Whether a shopping card offering credit has an effect on your credit worthiness is an issue for another day, but the majority of companies issuing these cards claim to report to one or all of the major credit bureaus.

Prepaid Cards

As the name suggests, the prepaid cards do not offer credit and although the existence of having such is likely to appear in your report, your use of a prepaid is likely to affect your credit score. Besides since there's no credit involved, not all prepaid card issuers will bother to report your transactions to the credit bureaus.

How Credit Scores are generated?

Credit scores are generated using software managed by the Fair Isaac Corporation (FICO). A copy of the software is given to the credit bureaus and using a highly complex algorithm (which is unlikely to be revealed to the public) the software can find out just how credit worthy you are — basically your credit worthiness is your chances of not defaulting on a credit facility.

Why you need a good credit score?

The bulk of U.S consumers have no idea what credit reporting is all about. As confirmed by credit experts, this knowledge specifically on how your use of a present credit facility affects your future rating is crucial to having excellent FICO scores, which will make one qualified for more facilities at lower interest rates.

About Credit Reporting

Credit reporting was initiated more than 100 years ago when small retailers would trade financial information about their customers. Since then, credit reporting has overcome its initial troubles and witnessed more legislation to protect consumer privacy and also ensuring information held in reports is more accurate by permitting the owner challenge to his report.

Credit reporting is handled by 3 major credit bureaus (Equifax, Experian, TransUnion) governed by the U.S. Fair Credit Reporting Act of 1971. Every lender including credit card issuers are required to report transactions every month. Each credit bureau then uses information gathered from lenders including information from landlords, employers, and those concerning taxes, law suit and bills to create a credit history for every individual.

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