A person's credit rating is a very important part of their life … having bad credit can affect your ability to get a loan, credit card, auto financing, some bank accounts, and even some jobs. While many people are aware of how important their credit rating is, they might not know exactly how it is that their credit rating is determined.
Below you'll find some information on exactly how your credit rating is determined, including the sort of things that can cause it to go down, as well as things that you can do to make sure that everything is correct and how you can improve it If it's worse than you'd like.
How is it determined
Your credit rating and your credit score are determined by a compilation of reports from the various creditors that you've had in the past, both positive and negative. Each report either adds to or subtracts from your credit score, depending upon whether the report is positive or negative.
The higher your score is, the better your credit rating is and the less of a risk you are considered by lenders. If your score is low, then you have a bad credit rating and are considered to be more of a credit risk.
Reports from as far back as seven years can still affect your credit rating and score, causing past credit problems to stick with you for several years before they finally expire and are removed from your credit record completely.
Negative Reports and Their Effects
Obviously, negative credit reports can have a negative effect on your credit rating and your credit score. The more negative reports you receive due to non-payment or consistent late payments, the lower your score and credit rating will drop … and since the negative reports will stay with you dragging your Credit score for some time.
Also, having negative reports from certain lenders or businesses can cause you to be denied loans or services from some other businesses … since there are so many businesses and banks that have multiple branches, having payment problems with one branch can sometimes cause you to Be denied by other branches, even when you do not realize that they are part of the same company.
Checking Your Report for Errors
It's a good idea to request a copy of your credit report periodically, so that you can inspect it and make sure that everything is correct and that you're not incorrectly reported for a debt that's not yours.
Copies of your credit report can often be gotten for a fee from credit reporting agencies, or in some cases you can receive a free copy from some companies or government offices.
Should you find an inaccuracy on your credit report, you should contact the credit agency and let them know that you'd like to dispute it.
Depending upon the results of the agency's investigation, the questionable report will either be removed or will be left as is.
In addition to potentially finding errors on your credit report, often reviewing the material contained in your report can help you to find early signals of identity theft and stop it before it gets out of hand.
Improving Your Credit Score
The best way to improve your credit score is to begin paying off your old debts and make sure that you keep payments on your new debts up to date. While you may have to wait for old reports to expire, your new reports will be positive and help to improve your score.