Advantages and Disadvantages of Credit Ratings
Credit ratings can work for you and they can work against you. This can be explained in a few different ways as you seek to learn more about your creditworthiness.
Profile of FICO, a Major Credit Rating System
FICO stands for Fair Isaac Corporation. This is a company that now uses numerical scores to help determine credit rating.
Beware: About Credit Rating Fraud
Beware of credit rating fraud. One of the sneakiest ways that identity thieves could get you is setting up a phony ‘free credit check’ website. They might offer you a free trial but your credit card may be required.
Credit Rating: Brief Explanation
Credit rating is what helps establish the creditworthiness of an individual, corporation, or country. It is an overall evaluation of a person or organization’s total history.
An Overview
This financial history evaluation is determined based on both good and/or bad marks on your credit report. This information tells creditors quite a few things. For one, it helps determine a borrower’s ability to repay debt. It also shows a lender how faithful you have been with making payments in the past.
A credit rating also shows a lender how much money you can reasonably pay back. This is usually determined by evidence that you have made timely payments in the past.
Credit ratings nowadays are also used for a variety of other purposes. For one, it can have an effect on insurance premiums and your creditworthiness also has been used to determine whether you would get hired for a job.
Another use of this evaluation of your financial creditworthiness would be to determine how much of a deposit you need to make when seeking a service. This is very common when signing up for a cell phone plan or if you are moving into a new place and need to turn on utilities.
On the contrary, a poor credit rating shows a high risk of defaulting on a loan. It also increases chance of being turned down for a loan or paying high interest rates on loans.
Evaluation Factors
Besides all of the above, it may help you to know what affects your creditworthiness. Your credit rating is based on the following factors: loan repayment ability, amount of credit used, interest, saving patterns, debt or spending patterns.
Another factor that is not mentioned above is that of the number of inquiries you may have. It is fine to have a few that remain on your credit report, but it is best not to get carried away as excess requests for credit can count against you.
Calculation Info
Your credit rating is calculation in one of at least a few different ways. You for instances probably have heard of the FICO scoring system. This is a three digit number usually between 300 and 850, with about 620 being good while 723 is excellent.
Of course, if you have a FICO score of 850 you are going to be considered someone who has A-1 credit. There are similar point systems used by Experian (PLUS score) and VantageScore. However, it is the FICO score you may hear of most often.