There are three main agencies that act as providers for credit rating’s:TransUnion, Equifax, and Experian. Many lenders receive two or more reports because details may differ among each agency. Opinions differ on which agency is the best or most accurate. The issue is debatable, with supporting factions holding strong opinions on each side for all three of the major agencies.

The 3 agencies use a formula known as FICO to mete out a credit rating. Named after the Fair Isaac Credit Organization, it was one of the first companies to issue credit ratings in the mid 1900’s. FICO Scores are numbers ranging from 300 to 900 that calculate the approximate risk an individual poses to a lender. A rating of 300 is considered extremely high risk, while 900 indicates that an individual is of no financial risk to the lender. In essence, one may possess a good credit rating or bad credit rating.

This rating is calculated based on the percentage of total credit currently being utilized, approximately 30% of the FICO score. Also factors, how long one has had lines of open credit, 15%, the types of credit lines one has 10%, how large past lines of credit have been 10%, and the number of late payments 35%.

As a general rule, a credit rating of 500 is high enough risk that most lenders will refuse a line of credit, and lenders that do grant one will penalize the borrower with high interest rates and difficult terms. Credit ratings above 850 will grant the lowest possible interest rates and a very small down payment where necessary. A credit rating over 650 is good enough to procure favorable terms and almost always be accepted for new lines of credit.

Many organizations offer free online access to credit ratings. These sites offer reports from all three major agencies, as well as details on why one’s score may be low, and offer suggestions for improvement. Ready access to one’s credit rating information has led to the creation of many online forums and communities in which members help one another to raise their credit ratings.

Given the importance of favorable interest rates and terms, particularly on large credit lines, such as mortgages, it is clearly worth investing the time and capital involved in acquiring access to one’s credit rating. In recent times, all the major credit agencies have offered free credit reports for the general public. Even people with a relatively strong credit rating, for example those above 700, will find marked improvements in terms, as they raise their credit rating.