Credit Rating Criteria

There are many credit reporting agencies or credit bureaus, who rate the credit reports for judging the creditworthiness of consumers. Usually, a credit report contains information regarding the borrower’s credit history, payment history, regularity of payments, credit account inquiries, social security number, contact address, and details of the credit account.
The credit rating criteria may differ from one credit account to another. Credit report rating is done to check whether the loan amount can be paid back by the borrower. There are many factors affecting credit rating. Once the credit report rating has been carried out, it generates a result, which is in the form of a numerical value.

This score determines whether an individual is eligible for a loan, employment, or lower interest rates. There are five factors affecting credit rating or credit rating criteria followed by the various credit rating agencies.

They are summarized as follows:

  • History of payments made
  • Amount outstanding
  • Duration of credit history
  • Types of credit used
  • Credit account inquiries

# History of payments made: One of the credit rating criteria is the payment history. Every credit rating has a score. History of payments made, encompasses 35% of the rating score. In the event there are late payments or the credit report has registered delinquent payments this is recorded in the credit report. The report also has details of bankruptcy, if applicable.

# Amount outstanding: 30% of the credit score evaluates the outstanding debt amount. This is also one of the credit rating criteria for generating the score. When the outstanding amount is close to the amount of credit limit, this can negatively affect the score.

# Duration of credit history: 15% of the credit score relates to the duration of the credit history. If the duration of a particular credit account is long and if the credit account is held with one particular financial service institution, this can have a positive effect on the credit score.

# Types of credit used: The type of loan availed by a consumer is one of the credit rating criteria. If an individual has availed a loan from a finance company, this affects the score in a negative manner. 10% of the credit rating score is based on this credit rating criteria.

# Credit account inquiries: Opening several new credit accounts is a negative qualification on the consumer’s part. 10% of the score is determined by this credit rating criteria.

If the credit report has a negative scoring, one can opt for credit report repair by adopting several means. The FCRA or the Fair Credit Reporting Act, has made it obligatory for the important credit bureaus to furnish details of ones credit report once a year. By reviewing credit report scores, one can be prevented from the hassles of debt settlement and declaring bankruptcy. Keeping a track of the score is vital for maintaining a good credit history.

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