Importance of Credit report rating:
A credit report furnishes all information about the borrower. Information pertaining to the dwelling address, social security number, employers, past credit history, payment plans, late payment is provided in the credit report. In other words, credit report rating, rates an individual with regard to payment capabilities of borrowed money. The credit report records the number of days by which payment has been overdue. It may be more than 30 days, 60days, 90 or more number of days.Procedure followed in credit report rating:
There are many agencies dealing with credit reporting. These credit reporting agencies use formulas to work out an individual's creditworthiness. All the parameters in the credit report are taken into account while deciding the creditworthiness of a borrower. The score obtained manifests the financial health of the consumer. The credit report score is a numerical value ranging between 150 to 900.Parameters taken into account while evaluating credit report:
The parameters, which are taken into account while rating credit reports include the following:- Kind of credit accounts
- Payment history
- Credit history
- Total credit amount
- Available credit amount
- Used credit amount
- Tenure of open credit lines
- Number of open credit lines
- Number of inquiries on the credit report
Effects of credit report rating:
Low credit report score:
A low credit report rating dampens the possibilities of borrowing money in future. It may influence a lender's decision to decline a loan request of a consumer.A low score may also compel a borrower to borrow money at a higher rate of interest. The reason for this is that the consumer with a low credit report score may pose as a risk to the lender.
High credit report score:
A good score can be of immense help to the consumer. In the event, when an individual is intending to open a business, a credit can be readily availed of, for various purposes.The outcome of the rating can be:
- Positive rating
- Neutral rating
- Negative rating
With identity theft on the rise, it is always recommended that the credit report ought to be reviewed occasionally. When a credit rating is negative, the consumer can repair the same. There are many ways by which the credit report can be repaired. Moreover, to do away with corruption, the Credit Repair Organizations Act, has been executed to protect consumers from fraudulence.
Ways to improve credit report rating:
There are many ways by which the credit report rating can be improved if the score is negative. Some of the methods are given below.- Tracking expenditure
- Managing debts and expenses judiciously
- Buying small budget items and making payments religiously within the specified period. In this way, the negative score will get repaired over time.
