In many countries, credit history (also known as credit rating or credit score) is a signal of a person's previous debts and repayments. It shows the time when certain debts were made and the time when the same are paid. It also gives info indicating the individual's tardiness when it comes to payments, or if he couldn't pay due to a bankruptcy filing.
A credit bureau records such info; and financing companies or credit card companies may look into this record to verify the worthiness of a borrower, or in some cases a company, to settle debts. So, lenders base this decision on the reputation of the borrower when it comes to paying monetary obligations. The borrower's reputation also will dictate the possible Annual Percentage Rate (APR) that lenders might charge him for giving him a loan.
A credit score is a numerical value representing his or her credit worthiness. Typically, a credit score of 650 or higher is good. Anything over 750 is considered very good credit. A person is considered very risky by lenders if he has a bad credit score. A low credit rating reduces a person's chances of getting loans, and if he does get a loan, it wouldn't be the best terms (e.g., very high interest rates). So, in this situation, before applying for a loan, it may be beneficial to learn how to improve credit score
Let's talk about issues regarding credit rating computation. Although separate countries have different means of ascertaining a person's credit score, they consider similar factors, such as:
The individual's delinquency. If the borrower is often late, then it will cause the re-aging or the issuance of a new credit history because he usually fails to pay his debts on the time specified. Paying on time is one way to improve bad credit score.
The individual's constancy and conscientiousness Signals showing the borrower's sense of responsibility is one thing that the lender will look out for. The duration of his stay with a particular employer is one indicator. Other signs include the borrower's ability to pay his bills and whether or not the payment is on time.
The person's self-control. The lenders will usually entertain the borrowers who show that they can manage their finances properly. Therefore, a borrower should show that he is living within the limits of his/her budget. If the lender finds out that the borrower usually exceeds his/her limits, then the latter's credit rating decreases.
Inquiries made into the individual's credit. If it was demonstrated that a lot of of the inquiries on the borrower's credit were made by lenders, it may cause a decrease on the borrower's credit rating. Many hard inquiries on one's account may show that the borrower looked for loans many times in the past.
Now, let's talk about obtaining a credit report for free. In the U.S.A., there are 3 credit reporting agencies that provide an individual with a free credit report annually. These companies are Equifax, Experian and TransUnion. Their service is available online through the site, www.annualcreditreport.com. You can request a copy of your credit report from each credit reporting agencies with no cost at least once every year. It's a good idea to check your credit rating every 4 months or so to make sure the information in your credit record is right.
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