My Credit Rating

By: EconomyWatch   Date: 25 August 2009

About The Author

EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

EconomyWatch, Content Team

 

  • Dot Div
  •      

A credit rating is a numerical representation of your credit worthiness. It is computed by several credit rating agencies by analyzing numerous documents, such as bank records and tax statements.

 

Who Will Assess My Credit Rating?

Your credit rating may be assessed by the following parties:

  • Lenders: Credit ratings are primarily concerned with evaluating the risk pertaining to lending money. Hence, lenders, banks and financial institutions use the credit rating to accept or reject your request/application for loans. Lenders also use a credit rating to setup interest rates on the loan. High risk borrowers have to pay higher interest rates than low risk ones.

  • Insurance providers: Similar to banks, insurance companies establish lower premiums for an applicant with a good credit rating and an impeccable track record. Credit defaulters have to pay bigger premiums for the same insurance amount.

  • Landlords: If you seek to rent or lease an accommodation, you might have to present your credit rating reports to the landlord. It acts as evidence of your capability of paying the rent on time.

  • Potential employers: Some employers use credit ratings to assess job applicants. This is because a healthy credit rating reinforces the reliability quotient of the candidate, since it shows that s/he is able to meet financial commitments effectively.

You might also be required to present your credit rating report to individual merchants and service providers while making payments through checks.

 

What Constitutes My Credit Rating?

 

When you borrow money or take a loan, the lender or bank usually sends information to different credit bureaus as a credit report. This report explains how effectively you handled the debt with respect to your payment patterns. The credit bureau generally calculates a credit rating from such reports. The important elements constituting the credit rating are:

  • Past credit performance: 35%

  • Current level of debt: 30%

  • Duration of debt: 15%

  • Types of credit used: 15%

  • Pursuit of new sources of credit: 5%

This form of credit rating is known as the FICO score. This score ranges from 300 to 850. If you have a FICO score above 650, you will be able to take loans easily, at subsidized interest rates. Hence, your credit rating is evidence of your financial health and maximum effort should be made to maintain a favorable rating.


  • Dot Div
  •      

Most Popular in Credit Report

Related Links
blog comments powered by Disqus