What is a Credit Rating Agency

In today’s society, credit scores and credit ratings have a major impact in determining an individual’s quality of life.  The ability to purchase a home, purchase a car, and even obtaining a job can all be impacted by the credit scores given by one of the credit rating agencies.  However, there is a great deal of mystery surrounding the credit rating industry, and how credit scores are created. In the U.S., there are three major credit rating agencies – Experian, Equifax and Transunion.  These three agencies produce dozens of credit ratings that are used by thousands of companies in hundreds of industries to make a determination of the credit worthiness of someone who is seeking to purchase a product or service based on credit.  As stated previously, increasingly more and more employers are also using creditworthiness as a criteria in hiring employees.  These companies all use credit agencies to determine credit risk because of the relative low-cost versus trying to determine credit worthiness themselves. Although there are literally dozens of credit scores, the most widely recognized and most well-known credit score is the FICO score.  Using a system of scoring from 350 to 800, each credit reporting agencies utilizes the information within an individual’s credit report to develop a corresponding FICO credit score.  Generally, any scores below 640 are considered poor, 640 to 720 are considered average, and 720 and above are considered excellent.  Each credit reporting agency has its own individual criteria in developing a FICO score, so the scores of each report can vary widely. As a consumer, you should be aware that quite a few credit reports that the credit companies use contain errors that can negatively impact your credit score.  However, federal law requires that a consumer be able to view their individual credit reports once a year at no charge.  If you want to view your credit report, go to www.annualcreditreport.com. All three credit reporting agencies allow you to easily dispute any items on your credit report that you deem are incorrect.  Any item you dispute must be addressed by the creditor within 30 days, or it will be removed.

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Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.

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