Credit rating can be simply described as a score that determines the credit worthiness of a borrower or a debtor. The rating is usually contacted by a credit rating agency and provides information on a debtor’s capacity to repay borrowed money and the chances of defaulting. Credit rating is very critical if lenders have to stay in business. What is given to you must be recouped at a profit. Here is a detailed look at your credit rating and what it affects.
What is credit rating and who uses it?
As opposed to popular thought, credit rating varies considerably from one lending agency to another or from one product to another. Your eligibility for a credit facility will vary considerably depending on the agency’s position in the market, strategy or the kind of products they provide.
If you are not sure about your past financial activities then you should seek the services of a credit rating agency to determine your credit score.
Unfortunately, most companies do really publish their scoring systems but there are many ways you can use to know where you stand. The good side of it is that you can never really consider yourself to be on everyone’s black list. Actually, there are lenders who look for people with bad credit though they will tend to charge high interest rates. This often includes hard cash lenders.
If you consistently default on loan repayment chances are that many conventional lenders will snub your credit requests.
Key areas of your credit rating and what it affects
Your credit score will be important when you go out to seek a loan, overdraft, mortgage financing, a credit card, car insurance or even mobile phone insurance.
Mortgage eligibility – Your eligibility for a mortgage loan will often depend on your credit rating. If you have a good credit score then chances are that you will receive a good mortgage rate. Therefore, before seeking a mortgage financing, you should identify your credit score, and try to improve on it.
Bank loans – A good credit score is perquisite before you can get any good loan from a bank or any other lending institution. A good score will certainly guarantee you a loan though some institutions may go ahead and consider the profitability of the amount you are requesting.
Insurance – Insurance companies rely on your ability to pay premiums. If you have a bad credit history it means that you less likely to pay on time and, therefore, you are not a good business to them.
Building your Credit score
Sometimes you may not be sure about your credit rating and what it affects. Things like not paying gym monthly fees or not repaying your student loan often find their way on your credit report. There are a number of things you can do to improve your credit score and they include the following: analyzing your current score, paying bills on time, pay all debts, keeping your credit card accounts and reducing the number of credit cards in your possession.