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What Is A Credit Rating [Bad Credit]

What Is A Credit Rating?

Many people, especially individuals who work in the financial markets, are familiar with the term “credit rating”. Ironically, people seeking financing have no clue of what a credit card rating is. In the simplest definition, a credit rating is an ongoing evaluation of an individual’s credit history which usually illustrates his possibility of paying back any credit advanced to him at a particular time.  This information is usually analyzed by the credit reporting agencies once a person acquires credit in different forms e.g. credit cards, loans or mortgages. The information analyzed by the agencies usually includes such things as ones past credit balances, credit repayment history and any past credit problems that one may have run into. In a more realistic situation, when you apply for a loan, the bank you have contacted will first analyze your credit. To do this, it will contact one or more of the three credit reporting agencies, which is an official that keeps credit records of all citizens, for your records. The information the lending firm gets usually plays an important role in determining whether to give you the financial aid you are seeking. Many lending firms offer different repayment rates based on the credit rating of an applicant. For example, you might end up being charged a high interest rate when having a bad credit rating. But, how is it that one ends up with bad credit rating in the first place?

Factors That Affect The Interest Rate You Get From A Lending Firm

  1. Delayed payments - A late payment is usually one of the most obvious causes of a bad credit rating. Late payments or skipping any kind of payments usually affects your credit rating in a negative way. It is therefore important to always pay your debts on time.
  1. Exceeding your credit limits -  This is usually referred to as ‘maxing out’ your credit. You should always keep an eye on your credit limits. By exceeding the limits set, your lenders will often perceive that you lack control of your expenditures and may end up denying you a loan.
  1. Being declared bankrupt - Your financial situation can lead you to file for bankruptcy. While this can be your only option, it can bring you more harm than good. For example, once you file for bankruptcy, many lending firms will overlook your loan application until you prove that you are in full control of your finances.
  1. Errors in your credit report - Your credit report might have some errors, for example, errors of omission. This might affect your credit rating and eventually the verdict that the lending firm comes up for your loan application. Thus, always keep an eye on your credit report at all times.

How to Repair Your Credit
There are a number of things that you can do to repair your credit. The most obvious one is to pay all outstanding debts that you have. Also, pay all your bills on time and avoid depleting your credit if you use credit cards.

To obtain financing with credit problems see the Bad Credit Loan options available on our homepage.

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