Lenders, rental management firms, insurance companies, cell phone carriers and employers are just a few of the entities that judge you by your credit rating. This rating is influenced by your credit use, as reported by the Experian, Equifax and TransUnion credit bureaus, and your credit score, which comes from the report data. A positive credit rating benefits you in several ways.
Definition
Your credit rating is your perceived creditworthiness, based on information in your credit reports, according to the Federal Reserve Bank of San Francisco. Creditors and others review the number and types of accounts on your reports, whether they are currently active, whether your payments are up to date, how much you owe and how much credit you have available. The bureaus and credit scoring companies like FICO also distill your information into a three-digit credit score, which is a quick indicator of your financial stability.
Borrowing Ability
Your credit rating lets you easily qualify for loans and credit cards if it is positive, with low balances and a long history of on-time payments. You get the lowest loan and insurance rates with a good credit score and appear favorable to employers. For example, if you pay three percentage points more for a mortgage because of a poor credit rating, the Consumer Federation of America advises that a $100,000 loan will cost you $2,400 more per year. A good rating also qualifies you for credit cards with favorable terms such as reward points, cash rebate or airline mile programs and no annual fees.
Other Benefits
A good credit rating lets you easily rent apartments, turn on utilities and get new cell phone service. Landlords, utility companies and phone service providers want to deal with people who are likely to pay their bills on time and a positive rating or high credit score gives them some assurance.
Considerations
Your payment dates and the amounts owed on your credit cards are the two most important parts of your credit rating and the biggest influences on your score, the MyFICO scoring site explains. Your rating is positive if you pay your bills on time and keep your balances to less than 30 percent of your credit limits, as long as you do not have major negatives like written off accounts, car repossessions or bankruptcies within the past few years. Catch up late accounts and pay down high debts to improve your rating.
Rating Review
Federal law lets you review your credit reports and check your credit score if you want to determine your rating, according to the Federal Trade Commission. The reports are free once each year through AnnualCreditReport.com. The credit bureaus and FICO are allowed to charge you a "reasonable fee" for your credit score under the Fair and Accurate Credit Transactions Act, according to the Privacy Rights Clearinghouse.
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