Maintaining a healthy credit report rating is important to convey an impression of creditworthiness. This is possible by following certain rules and abiding by them. A Credit report rating provides a value, which ascertains whether a borrower is capable of paying back the loan amount within the time allotted.
A credit report furnishes information about the borrower, for example, home address, social security number, employers, past credit history, payment plans, and late payments. In other words, a credit report, rates an individuals ability to manage borrowed money.
The credit report also records the number of days by which payment has been overdue. It may be more than 30, 60, or 90 days.
Credit-reporting agencies use formulas to work out an individuals creditworthiness. All the parameters in the credit report are considered. The score obtained manifests the financial health of the borrower. The credit report score is a numerical value ranging between 150 to 900.
Parameters include the following:
Kind of credit accounts
Total credit amount
Available credit amount
Used credit amount
Tenure of open credit lines
Number of open credit lines
Number of inquiries on the credit report
Effects of credit report rating:
A low credit rating dampens the possibilities of borrowing money in the future. It may influence a lender’s decision to decline a loan request.
A low score may also compel a person to borrow money at a higher rate of interest. The reason for this is that the borrower with a low score may pose a risk to the lender.
A good score can be an immense help. In the event that an individual intends to open a business, credit will be easier to access.
The outcome of the rating can be:
Negative ratings are recorded in a file for 7 years. Bankruptcies are registered for a period of 10 years.
When a credit rating is negative, the consumer can repair it. Methods that improve a credit score include:
There are many ways by which the credit report rating can be improved if the score is negative.
Some of the methods are given below.
Managing debts and expenses judiciously
Buying small budget items and making payments religiously within the specified period.
With identity theft on the rise, it is wise to review a credit report occasionally. Moreover, to protect consumers from corruption and fraud, the Credit Repair Organizations Act formed.