The credit rating has become the leading factor for many aspects of the consumer market. It can determine the interest rates that lenders offer applicants on loans. The credit rating can establish the limits on credit. Getting a certain credit rating can even be reflected in the price of insurance premiums.
Credit ratings are generated through the FICO score. The FICO score was developed by the Fair Isaac Company to predict the amount of risk involved with each customer. It uses mathematical formulas, based on past activities. Lenders look at these numbers to see what risk there will be of an applicant not repaying the money. The lower the credit rating then the higher the risk to the lender – translating into costly interest rates and small credit limits being offered to the borrower.
There are three major reporting agencies in the United States. Experian, Equifax and Trans Union each use the information that is gathered from creditors and public records to establish a credit report. Forget everything that was said in high school because it is this permanent record that really matters (although it is not technically permanent the amount of time that information remains on the credit report can make if feel that way particularly when a consumer is searching for a loan).
The credit rating that is generated by these agencies through the use of the information is what determines the buying power of a consumer. A good FICO score is between 700 and 720 for most situations. It is these prime consumers that companies are willing to compete in order to sign up.
Good credit ratings provide a wide range of opportunities. Credit card companies offer the best cards to consumers with good credit ratings. These cards come with rewards programs, membership services and other benefits that are not usually available through other cards offered by the company.
Some lenders do not bother to look at the income of consumers with high credit ratings. The FICO score is all the justification necessary for revolving store credit and other types of personal loans.
Even the insurance companies can get in the game. Some of them actually review the FICO score of policy holders and adjust premium costs accordingly. The higher the credit rating then the more of a discount consumers might see reflected in the policy.
The flip side of the coin is the trouble that a low credit rating may cause consumers. Generally a low credit rating is anything under 600 to 650. According to FICO these individuals provide a high risk to lenders.
Low credit ratings are most often related to late payments or defaulted loans. This negative information can remain on the credit history for up to 10 years. The result is that consumers have to pay more and often get less for what they do pay.
Even employers are looking at FICO. The integrity of future employees can be a strong factor when it comes to choosing the right candidate for a job. A low credit rating reflects a person’s inability to follow through. It may also show a lack of reliability because of a failure to make payments on time or to make them at all (in the case of a defaulted loan).
Credit ratings can play an important part in many aspects in today’s society. The FICO score can reveal the true nature of a person. A high score will open opportunities and a low score can be responsible for slamming doors shut. Getting a high credit rating and working to maintain that rating can start right now. The keys is to make payments on time and pay balances in full.