If you have ever tried to obtain a loan, finance a home, purchase a car, or obtain a credit card, you have been evaluated based upon your credit rating. Your credit rating is a score used by companies to help estimate the risk the company would be taking in extending credit to you. Based upon this evaluation, a company will decide whether you qualify for a loan or service.

Although the credit bureaus are secretive about the exact equation or mathematical model they use to arrive at your numerical credit score, a number of known factors contribute to your credit rating, including:

• The length of your credit history
• The number of accounts opened
• The amount of debt you currently owe
• How diligently you make regular payments on accounts to banks, mortgage companies, finance companies and retail stores
• Information from public records such as bankruptcies, tax liens and judgments
• The number of credit inquiries made by companies

The most commonly-used credit score is the "FICO Score," which is based upon a mathematical model devised by Fair, Isaac and Company. Under the FICO model, your credit score may range from 350 to 850. Most people's scores fall between 600 and 700. The higher the score, the better credit risk you are considered to be, and the more likely companies will be to extend credit to you.

What Are The Major Credit Bureaus, And What Do They Do?

There are three major credit bureaus in the United States: Equifax, Experian, and Trans Union. These three companies gather information about your financial behavior by reviewing public records and receiving reports from creditors with whom you have opened accounts. They also use this information to calculate your credit score. Since each of the three credit bureaus operates independently of one another, they may have somewhat different information and a slightly different credit score.

The credit bureaus provide this information to companies that request it, so long as they have a legitimate business reason for the request. Companies such as car dealerships, mortgage lenders, and credit card companies use this information to decide whether or not to extend credit to you. In other words, they use your past financial behavior to decide whether you are likely enough to pay back the debt that it is worth their while to extend credit to you.