What is a credit rating?
Your credit rating is the embodiment of your entire credit history. It encompasses your credit assets, liabilities, and the other incidents in your financial past such as bad debts, unpaid loans, or good standing with creditors. The three major credit report bureaus determine your credit rating, as they are the ones collecting the information from different creditors and lenders.
From all this information, an assessment shall be made on how much money can be extended to you in case you apply for a loan or other forms of credit extensions.
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Three credit bureaus
A credit bureau, otherwise known as a credit reporting agency, serves as an assessor of a person’s credit history. In the United States, there are three main nationwide agencies that acquire an individual’s credit rating. The three agencies are Transunion, Equifax, and Experian. These three bureaus differ in such a way that different creditors and lenders submit information to them. From the collected data from lending companies, loan creditors, and other public records comes your credit assessment and credit score.
There is much debate about which agency creates a better and more accurate method of scoring. However, since these agencies represent different lenders, all of the reports churned by their company are vital to the assessment of one’s credit history.
Excellent, good, poor credit rating
To be able to determine if your credit rating is excellent, good, fair, or poor, the agencies use the Fair Isaac Credit Organization (FICO) method. Known as the FICO score, the number ranges from 300 to 900. The higher the number, the better are the chances of the lender to get the loan because they pose a lower risk. The FICO score takes into consideration the credit lines you have, your lines of open credit, if you have a reputation of being a delinquent payer, and the amount of credit you have in the past.
If you post a score from 750 to 850, your credit rating will be marked as excellent and you will be offered the best possible interest rate. A good credit rating ranges from 660 to 749. This means that there is a very good possibility that your financial application will be granted.
Those with fair or poor credit rating will have great difficulty in applying for a credit extension.
Always check the information logged in your credit report. This will guarantee the accuracy of your FICO rating.
Where to find a credit rating?
You can get your credit rating by simply calling, faxing, snail mail or going online to the three major credit bureaus: Transunion, Equifax, and Experian. It is mandated by federal law that you can obtain your credit report or credit rating from these three bureaus for free on an annual basis.
There is also the option of going to other sites on the web that offer the service of getting and monitoring your credit report for you. You may avail of their services, but always make sure that the site is a secure one.
How to improve a credit rating
There are many ways of improving one's credit. You will not be considered as a bad debtor if you can efficiently manage your debts in a timely manner.
The best but often unheeded advice is to always pay your bills on time. There can be no better way of increasing your FICO rating if many creditors consider you to be a good payer. Late payments can equate to very low scores. Bear in mind that even if you have paid off a loan, such an amount will not be removed from your credit history. So it would be better to plan ahead and manage your finances carefully before obtaining a huge loan. You will never know when you will need a loan extension at a future time.
The number of credit cards also affects your credit rating . It is a really bad idea to circulate your debts by charging off your other debts to credit card companies to your other credit card. This will result in a never ending cycle of debt and it would ruin your chances of getting a good credit rating.
What hurts a credit rating?
The first thing that can really affect your credit rating is an unpaid loan. This means that you are a bad payer and that there is a very good chance of you not paying your application for a credit extension.
Another negative point to consider is a delayed payment for your credit loan. Many people think that after paying something, the delay will no longer be an issue. This could not be further from the truth as negative records stay in your record for several years. This also includes payment of just the minimum of the loan and closing a credit card.
It would be poor management on your part if you spend your time paying for high interest rates, when you could have just managed your payments properly.
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How does credit rating affect my life?
As what was pointed out earlier, almost everything you need for a comfortable life depends on your credit rating. The outcome of an employment application, getting that nice apartment in the city, owning your dream car, and all other stuff will depend entirely on how your credit rating stands. If you have poor credit rating, chances are you would not be able to secure a much-needed loan as compared to having a good credit score.