How to Evaluate Your Credit Rating: A blog about techniques to evaluate your credit rating.
Credit rating can be a lot more than just a number. It’s your financial reputation, and it can affect where you live, work, and whether or not you get the most competitive interest rates and financial products. Ensure that you regularly check your credit rating to fix any changes before they lead to more significant problems.
Credit ratings have been more critical in the country’s financial sector during the previous two decades. A credit rating assesses the creditworthiness of a borrower both subjectively and quantitatively.
Credit companies such as Experian, Equifax, and TransUnion use a variation of Fair Isaac Corporation (FICO) credit scoring to score an individual’s credit on a three-digit numerical scale.
The credit score, often known as a FICO score, consists of the following components:
Payment history (35%)
This is an excellent predictor of whether or not you pay your bills on time and regularly.
The amount owed (30%)
This considers several factors, including the overall amount owed, the kind of accounts you have, and the proportion of money that is due compared to the amount of credit available to you. Your credit score may rise if you make on-time payments on all of your credit card bills, no matter how little they may be.
Length of credit history (15%)
The longer you have a history of making on-time payments, the higher your credit score will be.
New credit (10%)
If you’ve lately created a lot of accounts or applied for a lot of accounts, it may indicate that you’re in financial problems and may damage your score.
Credit mix (10%)
Having various accounts, such as installment loans, house loans, retail, and credit cards, may help you enhance your credit score.
Your total score, which may vary from 300 to 850, considers all of these factors. The better the score, the more enticing a borrower, is to potential lenders.
While each creditor specifies its credit score ranges, the average FICO score range is often employed.
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
In short, your credit rating results from your on-time financial performance. You can have an excellent credit rating if you pay your bills on time and make payments according to your lending agreement. If you have a poor payment history, you can have a poor credit rating.