A credit rating can have a significant effect on a person’s life, whether they like it or not. Ratings or credit records have always been used only for loan decisions, but now they can affect the approval decision for insurance or for any job. Usually, when applying for loans, a lender or creditor will use the credit score of the individual to decide whether or not they will be accepted for credit. But what is a credit rating, and how can you maintain it? Knowing all the components that go into the calculation of a credit score can help enormously in its maintenance to keep the door open to applications for loans and credit without having too many worries.
The most popular version of the credit rating is the beacon rating. The odds range from 300 to 900 (more than it is high, the better it is – in general, a rating is good if it is maintained above 600 and a rating is bad if it is below 550 ). This rating is essential when applying for a loan, as it will determine the interest rate you can obtain and will affect the decision of the approval. Here are the elements that determine a beacon credit rating.
Payment history: 35%
For a bank or for a creditor to lend money, they need to make sure that the potential borrower has a good history of payments. If the person has had multiple recoveries, missed or late payments, or bankruptcy, this will greatly affect their credit rating. However, those who apply for loans or credit can take some comfort knowing that if they have missed a few payments in the past and have turned around recently, this may reflect positively on their credit rating. credit. Recent payment mischiefs are taken much more seriously and can hurt the credit rating even more than those done in the past.
Concisely, the more borrowed an individual has been unable to repay the loan, the less likely he or she is to be approved for a loan and have a good rating. The more debt a person has, the more risky it is to lend money to that individual. The more the credit is used to pay the bills, the lower the credit rating will be. It is advisable to keep the credit consumption below 35%. Your credit consumption is the amount due in relation to a certain credit limit.
Longevity of credit: 15%
Financial responsibility is assessed over an extended period of time. The older the credit history, the better, because they are a good indicator of the spending habits of the individual and the possibility of a full repayment of the potential loan.
New credit surveys: 10%
The active flow of new credit applications can have a negative influence on the credit rating. The surveys conducted during the year are those taken into account in the credit rating equation. Searching for new credit applications demonstrates that the person may be in financial trouble and adding more and more to their debts.
Combination of credit types: 10%
This does not have much influence on the credit score, but it is good to diversify the types of credit to justify the experience in the management of finances.
The credit rating is very important because it can influence interest rates and approvals for loans, mortgages and other lines of credit. In the end, a good credit rating can save you a lot of money and is an easily attainable goal.