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.
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.