Credit ratings are scores based on a number of different factors that lenders use to assess the likelihood that you will pay back a loan. Your credit rating might vary depending on the information each credit bureau uses to evaluate your credit and how much weight they put on certain factors. Most credit bureaus calculate your credit score by a combination of factors including your current debt, history of payment, how long you have been buying on credit, how many types of credit you use and how often you apply for new credit. Credit scores are also referred to as FICO scores, and are graded on a scale that ranges from 350 (very bad) to 850 (very good).
In addition to your credit score individual creditors will also issue you a rating to assess your personal credit. Creditors issue ratings based on a scale that scores people by how quickly they pay back credit. Credit ratings consist of a combination of letters and numbers. The letters refer to the type of credit; the letter “I” stands for installment credit (such as mortgages and auto loans), and the letter “R” stands for revolving credit (such as a credit card). The letters are paired with a number ranging from 0-9; 0 says that the cardholder doesn’t have enough credit to judge their risk, 1 indicates that credit will be paid back within a month, and 9 represents bad debt. These types of credit ratings will vary from company to company depending on your personal track record with them.
Having a good credit score is extremely important because it has a big effect on your financial abilities. Your credit rating affects your ability to take out loans, possess a credit card, or take out a mortgage. The higher your credit score is the lower your interest rates will be which can save you a ton of money over time by giving you lower finance charges. A high credit score will also allow you to qualify for credit cards with better features and rewards programs.
Individuals with bad credit get much higher interest rates on credit cards, and in severe cases. are rejected for loans entirely. The fees incurred on credit card debt and loans possessed by people with poor credit are extremely steep, and often lead to further debt. Bad credit can also affect your ability to own or rent a home. Your credit score is a big determining factor in a multitude of financial decisions and can change very quickly, so it is important to keep track of it to avoid losing both money and loan privileges.
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