Credit Rating Basics
Do You Know Your Credit Rating?
The term credit rating can be confusing. Many Americans have credit cards and use them frequently, but not nearly as many Americans understand how their credit rating is calculated or just how much their credit rating affects them. Your credit rating can affect the type of credit card offers you qualify for, the interest rate on your mortgage, and even whether or not you will qualify for life insurance.
How Are You Rated?
Your credit rating is essentially a numerical score that credit card companies and other lenders use to determine whether or not you qualify for a credit card or loan. Currently, the most popularly used credit rating or credit score is the FICO score.
When you request a copy of your credit report, it doesn’t contain your FICO score or credit rating. Typically, you will have to pay a separate fee to have that information. If you’ve recently applied for a mortgage, ask what your credit rating is.
A Serious Number
Your credit history and credit rating can ultimately even impact whether or not you qualify for a life insurance policy. If you’ve declared bankruptcy in the past five years, many life insurance companies won’t want to extend large life insurance policies to you.
A Necessity of Life
If you don’t have a credit card, it is a good idea to get one so you can establish and build your credit rating. Simply charge a few purchases periodically and pay the balance in full. This way you can build your credit rating. The longer you have a credit card open, the more beneficial it is for your credit rating.
Too many inquiries or requests to open up credit cards can negatively impact your credit rating because lenders have found out that such individuals are more likely to default on their financial obligations. Don’t worry. If you order a credit report that includes your credit rating, that inquiry will not affect your credit rating.
Comments
Increasing your credit limits is one of the fastest and easiest ways to increase your credit rating.
When you increase your credit limits and your spending patterns remain the same you end up using a smaller percentage of your combined credit limits. This increases your scores.
Make it a practice to ask for higher credit limits on a regular basis, usually every 6 to 12 months. When you ask lenders for a credit limit increase, the credit inquiry will lower your scores, but a credit inquiry is usually less damaging than a maxed out credit limit.
Lenders periodically review your account to determine whether or not to increase your credit limit. This type of credit inquiry will not lower your scores.
Posted by: Brian H | January 12, 2007 3:34 PM