Credit rating

September 8, 2008 by Credit Specialist
Filed under Credit Score, credit reports

Credit Rating – In case you would like to know what a credit rating is, we have done the research for you and can tell you what exactly a credit rating is. As a matter of fact, there is nothing really special to it, yet important. A credit rating does nothing more than evaluating the credit worthiness of a person, company, or yes, even a country. These credit ratings are premeditated from financial history and current assets and liabilities. Characteristically, a credit rating tells a lender or investor the likelihood of the subject being able to pay back a loan.

However, in recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit. A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates or the refusal of a loan by the creditor.

Personal credit ratings
In the United States, an individual’s credit history is compiled and maintained by companies called credit bureaus. Credit worthiness is usually determined through a statistical analysis of the available credit data. A common form of this analysis is a 3-digit credit score provided by independent financial service companies such as the FICO credit score. (The term, a registered trademark, comes from Fair Isaac Corporation, which pioneered the credit rating concept in the late 1950s.)

An individual’s credit score, along with his or her credit report, affects his or her ability to borrow money through financial institutions such as banks.

In Canada, the most common ratings are the North American Standard Account Ratings, also known as the “R” ratings, which have a range between R0 and R9. R0 refers to a new account; R1 refers to on-time payments; R9 refers to bad debt.

The factors which may influence a person’s credit rating are:
* Ability to pay a loan
* Interest
* Amount of credit used
* saving patterns
* spending patterns
* Debt

How important is your credit score?
When lenders let you have a loan of money, this actually translates to an investment on their part. They collect from the interest as well as the principal. On the other hand, like all investments, lending money involves particular kinds of risk. For instance, a borrower may miss out on his monthly obligations, or he may file for bankruptcy. If either of this happens, the lender will have lost in his investment.

So to minimize the risk of loss, lenders want to know as early as possible whether you are a good investment or not – with other words, whether you are a good borrower who pays his monthly obligations regularly. One way for a lender to determine the likelihood of a borrower to repay his obligation is to get a hold of his credit score.

The credit score reflects how good of an investment you actually are. Each score is based on information that the credit bureaus keep on file about you. Based on such score, the lenders will be able to calculate how much and what loan terms (interest rates, down payments, etc.) they will offer you at any given time.

Thus, low credit scores generally mean higher interest rates and more stringent requirements for approval of your loan application. On the other hand, high credit scores generally mean lower interest rates and lower monthly repayments. So, since we have concluded that a low credit score is immensely to your benefit, how, if you have a bad credit score, can you improve your credit score? There are several possible ways:

How to Improve Credit Score
The first thing that lenders will check when you apply for credit – whether a loan, mortgage, or a credit card purchase – is your credit score. That’s because before they decide to lend you money, they want to know how good a risk you would be.

Lenders are business people and as business people they always consider the risks involved when they make an investment. The investment is the credit provided to you, of course. Whether it is a personal loan, Mortgage or any other form of credit: If the risk far outweighs their investment, then naturally lenders would approach your request with more caution seeking more security or worse, turn away altogether from such a deal.

The credit score helps lenders make their decisions easier and faster. Because your credit score is the closest thing to accurate information determinative of your future credit performance, they base their decisions concerning your credit application on this three-digit number.

For this reason, many consumers have decided to take steps to learn how to improve credit score. Even if you already have good credit standing with your lenders, it still pays to learn more ways on how to improve credit score even further. A good credit score can help ensure that you get the most favorable interest rates. How much more if you’ve got close to perfect credit score?

The best way to improve your credit score drastically is to get help from professionals. Below are some of those professionals to help you to improve your credit score. We advise you to browse their sites and their services. Experience with them taught us that they are among the best credit repair agencies. A good credit score is now merely a few clicks away.

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