Your credit rating plays a huge role in determining your financial well-being. Your credit rating is also referred to as your credit score. Your credit rating is determined by your past willingness to pay your debt obligations to creditors.
Significance
Creditors may use your credit rating to decide whether or not to extend credit to you. Creditors and lenders use your credit rating to help determine the likelihood of default on a loan. Your credit rating impacts your ability to get a mortgage, auto or personal loan.
Credit Scores
Your credit rating may range anywhere from 400 to 800. The higher your credit score, the better. Higher credit scores result in you paying lower interest rates on your loans. In other words, high credit scores mean you'll have to pay less to borrow money.
A low credit rating may disqualify you from borrowing altogether. If you're extended a loan with a poor credit rating, you'll usually find yourself paying higher interest rates in exchange for the privelege.
Fico Computation
Your Fico score is calculated using the Fair Isaac Corporation formula in the U.S. The formula is computed based on how well you've paid past obligations, amounts you currently owe, recent credit, length of credit history, and the types of credit accounts you have.
Credit Bureaus
Your credit rating is determined by information contained in your credit report. Most major lenders report your account history to all three major credit bureaus. The three major credit bureaus are Trans Union, Experian, and Equifax.
Considerations
It's a good idea to order your credit report from all three credit bureaus. You should look at your credit report at least every six months. Check your report for inaccurate information, as errors could cause your credit rating to be lower than it should be.
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