The fact is that credit reporting has evolved to an industry all of its own. Just a few short years ago, when someone applied for a loan, he or she put down credit references ? retail stores, banks, or other people or places with whom they had done business in the past. As a matter of course, the lender checked the references and decided whether or not to grant a loan based on an amalgamation of the responses from them. That really isn?t the case any more.

Instead, there are three major agencies that track everyone?s credit and provide a credit rating when contacted by a potential lender. The three agencies are Equifax, located in Georgia; Experian, located in Texas; and Trans Union, located in Pennsylvania. When someone applies for a loan, the lender generally contacts one of these three agencies and obtains a credit score and the score helps the lender decide whether or not to make a loan.

Credit Scores

How is a credit score calculated? Until recently, that was one of life?s great mysteries, but over the past few years new rules and regulations have made the information more readily available. Your credit score is a number that ranges from 300 to 900, although the exact formula for determining that number is proprietary and is not released. This is how it works in general.

· 35% of the score is based on the history of how you have (or have not) paid your bills. The agencies track how many of your bills have been paid on time and how many haven?t, as well as whether or not any of them have been referred for collection. The more recently you have had a collection or failed to pay something on time, the worse your score will be.

· 30% of the score is based on the debts you have at the time of the rating. It is includes car and home loans, credit card debt, retail store debt and the like. If you have several credit cards and they are all limited out, your credit score is lower.

· 15% of the total score is based on how long you have had credit. If you have never had credit or have only had credit for a short time, the lower your score will be.

· 10% of the score is based on the number of inquiries that have been received about your report, particularly if there are several in the past year.

· 10% of the score is based on your current credit and the types of credit you have. The number of credit cards and loans you have, as well as the available credit you have on your credit cards and considered.

Because your credit score is based on these factors and they are constantly changing, your credit score changes along with them. Therefore, there are things you can do to change your credit rating and bring it up.

Changing your Credit Rating

The first thing to do is get a copy of your credit report and make sure there aren?t any mistakes on it. If there are, take steps to get them corrected. Errors in reporting do occur, although the credit bureaus would like for you to think they are foolproof. Here are a few more tips to improving your credit rating.

· Don?t pay off the entire balance on your credit card. Keep about 75% of it paid and keep a 25% balance. This applies to multiple credit cards as well.

· Don?t get rid of your older accounts. Keep them open. The credit reporters look at the age of your accounts and the longer you have had a particular account in good standing, the better.

· Pay your bills on time. Experts say that this is probably the most important factor of all.

· Prevent inquiries to your credit report whenever possible. Your score drops with the number of inquiries.

The real key, however, is to only get credit when you need it and when you do get it, use it wisely. You can damage your credit rating with just a few late pays or collections and it may take up to a year of paying everything on time to build up a better rating.