Wednesday, March 21, 2007

Building A Better Credit Record

If you've ever applied for a credit card, a personal loan, or insurance, there's a file about you. This file contains information on where you work and live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy.

Companies that gather and sell this information are usually called Credit Reporting Agencies (CRAs). The most common type of CRA is the credit bureau.

What exactly is a credit file?

Your credit file is created when you first borrow money or apply for credit. On a regular basis, companies that lend money or issue credit cards to you - including banks, finance companies, credit unions, retailers - send specific factual information related to the financial transactions they have with you to credit reporting agencies.

The credit reporting agencies organize and store this information so that it can be referred to in the future, with your consent. Your credit file contains all the information that a credit reporting agency has received from companies that have extended credit to you.

For example, it might include a listing of your credit cards or lines of credit, along with a history of whether or not you have paid on time. If you have declared bankruptcy, that fact will also appear. If you did not pay a bill and your account was sent to a collection agency, that will show on your credit file. In summary, your credit file is a report of your financial history and performance with credit grantors.

Why is my credit file important?

When you apply for credit or want to open an account, the credit grantor wants to be sure that if they lend you money they will be paid back. The more your credit file demonstrates that you pay your debts on time, the more desirable you become as a potential customer.

If you have fallen behind in the past, a credit grantor wants to see how you have been managing your debt since then. Your credit file also shows how much you have already borrowed. Credit grantors want to evaluate your financial capacity to make monthly payments. No responsible lender will want to over-lend or encourage customers to take on more debt than they can pay back.

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