Category: 

What is a Personal Credit Rating?

A credit rating, sometimes referred to as a credit score, is a number that indicates the amount of risk that will be taken if credit is extended to a particular party. The inclusion of the term “personal” generally just means that that party whose credit is being assessed is an individual as opposed to a business. Credit ratings can be obtained from a number of sources, but they may differ due to varying methods of calculation.

In some societies, credit is heavily relied upon by massive numbers of people. A personal credit rating is a tool that lenders use to determine the likelihood that they will be repaid by applicants. The scores generally range from 350 to 850. The higher numbers suggest there is limited risk in extending credit to individuals, but as those numbers descend, the amount of risk increases.

A personal credit rating is obtained from a credit bureau. This is a business that maintains a credit report for a large portion of the financially active people in a society. These reports are commonly used to develop the credit score.

Ad

One of the major factors that influences a person's rating is her credit history, which is outlined in her credit report. If an individual borrowed money in the past and did not repay it, this will have adverse effects on her score. Although the negative impact may not be as drastic as defaulting, late payments and incomplete payments also drag a person's credit score down. When an inability to pay has resulted in liens or bankruptcy, a person can expect a bad credit rating.

The amount of resources a person has is another factor that can influence her personal credit rating. A person's earning history and assets are often assessed. If she has a substantial amount of outstanding debt, even if she is currently paying according to the terms, her credit score may reflect that she is an undesirable candidate for lenders.

A personal credit rating generally determines whether a person will or will not be allowed to borrow. In some cases, however, it serves additional functions. It may, for example, determine the circumstances under which a person is allowed to borrow. Riskier applicants, who are those with low credit scores, may have their credit applications approved, but they are likely to be subjected to higher interest rates. Another benefit of having a high credit score is that it can prevent the need to purchase mortgage insurance, which is coverage that provides lenders with compensation when homeowners default on their loans.

Ad

Recommended

Discuss this Article

bagley79
Post 4

It doesn't take very long for someone with a good credit rating to end up with a low score within a short period of time. It can take much longer to build a high credit score than it can be to lose it.

We always had a good credit score and never missed making our payments. It was nice going into a bank knowing we had a high credit score and wouldn't have any trouble getting a loan.

When my husband lost his job and had a hard time finding one that paid the same salary we got behind on some of our payments. We knew this would affect our credit rating, but also knew we were doing

everything we could just to put food on the table.

He has been working at a good job for several months now, and we are trying to get our credit rating built back up, but I know it will take longer than it did to lower it.

myharley
Post 3

By the time someone has to file for bankruptcy, usually their credit rating is already very low. If you have to claim bankruptcy because you can't pay your bills, this means you have missed a lot of payments before you get to this point.

Some friends of ours are just going through this process and they have been struggling for years. They tried combining their credit card debt and going on a budget, but they still haven't been able to make it.

I know they would have a hard time right now getting any kind of a personal loan with their bad credit rating. With so many people out of work, this is something that is happening more often than it ever used to.

sunshined
Post 2

We have worked hard our whole lives to have a good personal credit score. This was almost ruined when we co-signed on a truck loan for our son. While he was making payments, he lost his job and ended up losing both his house and his truck.

Any missed truck payments showed up on our credit rating like everything else in our name. We decided that we wouldn't co-sign on anything else again and have now been working hard to re-establish our good credit rating.

honeybees
Post 1

I think it is hard for young people to understand the benefits of a good credit rating. This can affect so many things you want to do like get a loan for a car, a house or even find a decent place to live.

When my kids were in college they kept getting credit card offers in the mail. I was really frustrated by this. I know it is good for people to start establishing a credit history, but this can be too tempting for young people right out of college.

They don't usually have much money and putting everything on credit seems the easiest thing to do. Many times they have trouble making all the payments or aren't that good at money management, and they have a bad personal credit rating before they hardly even get started.

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email