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    6 Facts about Credit Rating - #1

    More and more people have become increasingly dependent on their credit. Whether you need it for a loan or mortgage or for purchasing clothes and other services, there’s no arguing the fact that credit occupies a big part of our lives.

    This is all the more reason for you to understand credit reports, credit ratings, and scores. Here you will learn the six important facts about credit rating and some tips to help you get that loan you’re applying for, improve your credit history, and other helpful hints for a better credit profile.



    FACT #1: Creditors Rely on Credit Rating to Determine Credit Approval

    Using credit is really just borrowing money that you promise to pay back within a specified period of time. Now, at the onset, you can see how important it is for the creditor that you are really going to pay back what you owe him.

    But the problem is that there is generally no guaranty that the debtor – you – will pay back what you owe. At least, not to the creditor, there isn’t, unless, of course, you added a mortgage to your loan to guaranty the credit. And even if there is such a guaranty, it would still be better for everyone involved if the debtor is able to pay his obligations on time.

    This is why creditors are often very strict when screening loan applications. They want to find out whether the person is going to be a good investment by making his payments on time.

    Now, one effective way for creditors to determine the likelihood of a person paying back the money he or she has borrowed is through the credit rating system or your credit score. It is a statistical method that is based on various factors that relate to income, employment, credit balance, payment habits, among others.

    There are three main credit bureaus that issue credit scores, namely Equifax, TransUnion, and Experian. But don’t expect that these agencies will give you consistent scores. Since each credit bureau uses different evaluation systems, each based on different factors, it is highly likely that your credit score issued by one bureau is different from those issued by the other two.

    In addition, some lenders formulate their own evaluation procedures to calculate a person’s credit score. They may also contact an independent credit reporting agency to issue credit scores that use evaluation systems different from those used by the credit bureaus.

    There is no sure way to determine what factors a credit bureau is using to calculate your credit score. However, there are a few that remain more or less constant.

    When calculating your credit scores, the following factors are often taken into consideration:

    Debt and payment history on credits, such as credit cards, student loans, consumer loans, car loans, among others

    Current debts

    Time length of credit history

    Credit type mix

    Frequency of applications for new credit or inquiries for new credit

    And other factors that may be taken into account, such as tax liens, judgments, and bankruptcies

    All these factors can be determined from your credit report. A break down of all these factors shows that your credit rating is most affected by your propensity for paying off your debt as shown by your credit history or previous credit performance.

    If your credit rating shows that you pay off your debts fairly quickly in the past, then your present credit rating could get a boost up from that. Additionally, maintaining low levels of indebtedness, refraining from constantly applying for additional credit, and having a long credit history will help your credit rating in the long run.

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    Also In This Category:

    Credit Rating
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