CREDIT RATING
Credit rating is the score that lending agencies and mortgage companies use to judge your loan repayment capability and capacity.
Credit rating is a measure that indicates how well you will fulfill your installment commitments based on your past and current credit and payment history
The three major credit-reporting agencies are Equifax, Experian and TransUnion. They use different systems like BEACON, EMPIRICA or FICO to compute your score.
All systems consider the following factors:
How long you have been using credit.
Your total debt presently. This will include what you owe on credit cards, mortgages, personal loans and any other debts.
Whether you repay them on time.
Do you pay your monthly bills on time?
How many times you have been late on a payment.
Whether you have a criminal record, a judgment, foreclosure, or have filed for bankruptcy etc.
Whether you have any IRS Federal or State Income Tax liens.
Whether your wages have been garnished for child support or alimony payments
Credit rating scores determine:
Whether you qualify for a mortgage loan.
If your credit rating is high, the loan process gets easier and simpler and you may also qualify for a better rate.
Rating agencies consider your lifetime credit history while rating you. The simplest and best way to get a good rating is not to default on your repayment ever and pay your bills and loan payments on time.
How important is a credit rating?
It helps mortgage companies determine whether to grant you a loan.
It helps them decide on the mortgage rate.
Most lending agencies insist on a credit rating. Hence, a rating helps process your mortgage application quicker.
Factors that affect the rating
Late payments on your past or current credit accounts lower your score.
Adverse judgments and bankruptcies also reduce the score.
You score lower if your current income is not adequate enough to comfortably repay existing debts on time.
What lenders look for
Your level of credit risk.
How you have managed your credit obligations in the past.
The positive and negative factors of your credit behavior.
Whether your score matches or exceeds the minimum requirement for the desired loan product. (Different types of loans/mortgages have different benchmarks.)
To improve your score
Always pay your bills on time. If you have missed a payment, get current and stay current.
Keep high interest credit card debts to the minimum.
Check your credit report atleast once a year for mistakes, oversights and inaccuracies. Report errors immediately to the credit rating agency. It’s free!
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