About Credit Ratings

How Spending Affects Lending

What is a credit report?

A credit report is a report that summarizes a person's credit history. It includes the person's mortgage history, credit cards, bank loans and late payments, tax liens, and bankruptcies. It also includes how the person manages and uses money and their public records having to do with financial matters.

What is a credit score?

Credit scores range from 350-850. Consumers with scores below 600 generally are charged higher loan rates, while those with scores above 700 are generally charged lower rates. Those with scores above 760 generally get the best rates.

Why is a credit rating important?

All of this is important because it reveals things that may reflect favorably or unfavorably against the applicant. It tells lenders whether they should approve of a loan and what the rules should be, how long the term of the loan will be, what the fee should be, or the rate the interest changes. A person with a good credit report is more likely to get a better rate of interest than someone with a bad credit report. A bad credit report may result in the loan application may be denied altogether.

Why do credit scores matter when applying for a loan?

Your credit score has a direct impact on your chances of qualifying when you apply for a mortgage, loan or various credit cards, because your credit score is a numerical representation of the risk of you not repaying a loan. The lower your score, the higher that risk that you have the ability to repay the loan. A corporation called the Fair Isaac Corporation is responsible for these scores, also known as FICO scores. Credit scores are derived from reports kept by major credit agencies, including Experian, Equifax, and Trans Union. These agencies track all aspect of consumer debt, including whether consumers pay their bills on time.

How do you improve your credit rating?

• Pay your bills on time.
• Get up to date on missed payments.
• If you are having trouble, contact your creditors or see a credit counselor.
• Keep credit card balances low, large balances impact that score.
• Eliminate debt, don't rearrange it.
• Don't close unused credit cards to raise your score.
• Don't open more credit accounts than you need.
• Don't open too many new accounts too quickly.
• If you have had credit problems, act quickly to reestablish good credit.

More information about credit reports.

Learn more about your credit score at Matt on the Main Line.