Your Credit Rating

The credit rating is derived from your credit report. It is a profile of your credit activities, which is loan borrowing, charging, and repayment. National and local credit reporting agencies (also called credit bureaus) collect information from banks, finance companies, merchants, and credit card companies to generate a credit snapshot. A good credit rating means a higher likelihood of loan approval, while a poor rating means more difficult to find borrowing opportunities.

Remember, credit represents a loan. It is not a gift, but an obligation. It exists to be repaid, most likely with interest. The longer you take to repay, the more expensive it becomes. Protect your credit rating by paying on time and limiting the credit you use. Only use credit if you feel comfortable repaying it on time.

How does my Credit Report affect my Credit Rating?

Your credit report contains a lot of your personal information. For this reason, the reporting agencies restrict access to it from outside parties. Your credit report is released only for legitimate business needs, such as applying for a credit card, employment, or life insurance.

Since your job, your ability to buy, you could say your financial future is so dependent on your credit report, it is important to protect your credit rating by not missing your loan payments. You do not want to take on more credit than you can handle only to find yourself with a poor credit rating later!

As a rule of thumb, after paying your basic expenses (rent, food, utilities, school, medical), there should be enough to make your monthly credit payment(s). There should be enough left for savings and investment. If not, you may be putting your credit rating at risk.

It might be a good idea to check your credit report periodically. Just order a copy from one (or more) of the major credit reporting bureaus. This assures that the information used to determine your credit rating is current and correct.

What happens to bad information on my credit report?

It stays on there for at least 7 years, if not resolved. For bankruptcy, it is 10 years. But for employment and insurance purposes, it may be kept for much longer.

Credit history activity, both good and bad, is removed counting from the last action. This could be the last payment, chargeoff, placement with a collection agency, or start of a lawsuit, judgment, or tax lien.

Late and missed payments appear on your credit report and may hurt your chances at employment, life insurance, and of course, a loan. The best way to improve poor credit ratings is to control your spending and debt. For help, contact the National Foundation for Credit Counseling.