Credit Score Rating

Credit Score is a personal analysis of one's creditworthiness. It is a report, which shows the credibility of a person in the market. Credit score is determined by various factors like an individual's payment history, credit card balance, bank accounts, and other forms of credits like outstanding loans, mortgage loans etc. A high credit score is important when it comes to approval of loans while a low credit score goes against the approval of loan. This score helps in settling the interest rate on the loan amount. The credit score is a tool, which determines your financial condition. It helps the lender to understand how much risk is involved in the financial transaction.

Credit Score Rating is an indicator of creditworthiness which is derived by using a formula to credit report information. Credit score rating is similar to FICO Ratings. Fair Isaac Corp of California (FICO) was the first to develop a credit rating system, by giving individuals and companies, a credit rating score based on their credit worthiness. Credit score rating ranges between 300 to 900 points.

Factors which affect credit score rating are:

Past Non-payment of debts: If an individual has a history of non-payments of debts then obviously the credit score is low. Such an individual is considered as a high risk for lenders.
Long Credit facility Usage: If an individual has a past record of misuse of credit then his /her credit rating suffers and hits a bad patch. This leads to high risk for lenders as the person found irresponsible for his credit line.
Period of the Debtor Account: If a person has credit for long time than he is considered a good bet than the person who has just entered the credit world. The credit rating of person with longer credit account will be good than the person who has just got credit.
Frequency of Requirement of Credit: If an individual requires credit for numerous times in shorter duration then his/her credit rating is low. Time plays an important role in credit requirement.
Type of loan taken: The type of credit on an individual has a lot to do with credit score rating. A one-time loan is always better than a secured credit card.

Measures that help in improving credit score rating are:

Opening a saving account in a bank helps in improving the credit score by 20 to 30 points
Using a single credit card is better than maintaining three to four cards at a time
Be responsible in maintaining 50 percent balance on your credit card
Always try getting credit report on regular basis. If there are errors then they can be corrected on time
Never burden yourself with credit. Make it a habit to spend on cash and save something out of it

If all of us consider and learn from all these things then maintaining a high credit score rating will not be a problem.