What is a credit rating?
It is a measure of the willingness of a corporate organization or an individual to repay a financial obligation based on their income and prior repayment history. Credit rating is generally expressed as a credit score, a credit rating is used by banks and lenders as one of the criteria for deciding whether or not to lend money to companies or an entity.
What affects your credit rating?
- Payment history: Payment history is your payment record, whether or not you have paid bills or loans on time. If you have several late payments, then the credit score has a negative effect.
- Debt Number: 30 percent of the credit score is the amount of debt you owe. It is also better to maintain the debt at or below 30 percent because it determines whether or not you are a high-risk borrower. Lower debt is great all the time.
- Credit History: The more it influences the credit score, the longer the account history, the more it influences about 15 percent of the total credit score.
- Account Mix: 10 percent of the score is accounted for. Getting a mixture of revolving debt and installment debt, such as credit cards and loans, holds the credit score high.
- Credit Inquiries: Two kinds of credit inquiries that impact your credit score are soft inquiries and hard inquiries. Soft inquiries do not impact your credit score, but 10 percent of your credit score is compensated for by hard questions such as account mix.
Improve your credit score by:
- Pay the bills all on time
- On Credit Cards, keep all balances low and pay off your outstanding debt.
- Try not to close the credit cards that are not being used by you.
- If you apply for too much new credit, multiple inquiries will result, so do not apply for too much new credit.
- Apply only when necessary to open new credit accounts.
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