Understanding Credit Ratings
What is Credit Rating
The idea of credit rating is used while granting loans to individuals, businesses, or financial organizations . Anyone applying for a loan has to take the credit rating and if the rating is up to the required points, the loan is given . Credit rating helps to cross-check the financial ability of the borrower to repay the loan . Credit rating is nothing but a third party financial evaluation of the borrower . The past credit history of the borrower is taken into consideration while lending the loan . Borrowers with bad credit history generally stand a poor chance of loan but there are other options for them . The current assets and liabilities of the borrowers are also checked in deciding the credit rating of the borrower.
The United States has its own method of deciding the credit score of the borrower. There is a statistical study of the borrowers financial transactions and based on this they are given credit scores called the FICO score . Normally a credit score ranging from 600 to 700 is considered a good credit score and the borrower thus qualifies for a loan . A credit score below these points disqualifies the borrower from getting the loan.
The main credit agencies in the United States are TransUnion, Experian and Equifax. The global credit rating agencies are Fitch Ratings, Standard and Poor\'s, and Moody\'s credit rating agency .
Why the Credit Ratings
Many borrowers under-estimate the importance of credit ratings but that ultimately affects their ability to borrow and their poor credit score . A poor credit score means disqualification from availing low interest rates for loans like car loan, personal loan, home loan and other types of loan . One should thoroughly understand the idea and importance of credit ratings . The overlooking of the credit ratings will stamp the borrower with a bad credit history . Not understanding the importance of credit ratings puts the borrower in debts and also deprives them from affordable interest rates. The dent might rise to unmanageable rates and the monthly payments also rise .
Understanding the credit ratings helps the borrower to better anticipate their interest rates . When one borrows for home loans from credit cards, the importance of credit rating is highest because this will help the borrower to better manage their monthly installments . Debt consolidation in home loans means putting your home at risk because the home is the collateral in loans and one might lose home to borrowers due to high interest rates due to the lack of knowledge of credit rating .
When borrowers take all the care and have a satisfactory credit score their chances of availing the new credit gets higher. The borrowers become more knowledgeable about their financial transactions with the understanding of their credit score. Those with bad credit ratings fall prey to higher interest rates and will even have to file for bankruptcy and this is the worst that can happen due to the negligence of credit ratings .
The future financial dealings of the borrower are also affected by bad credit ratings . So it is in the interest of the borrower to fully acquaint themselves with the credit ratings lest they might have to lose their collaterals.
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