Credit rating gives an idea about the process of credit rating. There are discussions on the application of credit rating, its uses, effects on a borrower’s credit prospects and the factors that come into play when the credit ratings are calculated.Basic Application of Credit Rating The system of credit rating is applicable for any borrower. It can be used for the purpose of finding out the creditworthiness of an individual, a particular business entity or even a whole nation. Credit ratings are normally done by third parties. Important Uses of Credit Rating The system of credit rating is useful in several ways. However, its most crucial use is in the fact that it gives an indication of the ability of the borrower to pay the entire credit back in a proper time. As such the process of credit rating can be used in order to see if there is any possibility of the borrower being a defaulter.
Other than its conventional uses the system of credit rating is also applied in the following areas:
Making alterations in the premiums of insurances
Finding out the eligibility of a person in terms of jobs
Determining the sum of a leasing deposit or a utility deposit
General Basis of Calculation of Credit Rating There are many factors that are important in the context of the calculation of credit rating:
Financial history of the borrower
Account of the dues the borrower already has to pay
Account of current assets of the borrower
Basic Importance of Credit Rating The credit rating of a borrower is one of the most crucial aspects for him or her as the prospect of procuring a loan depends upon his credit rating. It has often been seen that if the credit rating of a person is good, the particular borrower would have no problem in getting the amount of money he wants.
On the other hand, if the credit rating of the borrower happens to be below the mark then there is a chance that the lenders might not entertain him. Otherwise he might have to pay extremely high rates of interest.
Last Updated on : 9th July 2013