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Credit reports are the record of a person or company’s data regarding their previous borrowing, repaying, late payments and bankruptcy. The credit ratings determine the individual’s willingness and ability to repay the debt. These credit ratings are measured differently in different countries, but there are some common factors which are mentioned below: 1. The payment history is a record of any wrong or untimely payments. Usually, if the record is of more than thirty days, then the credit rating is lowered. 2. The control of the borrowers over the debt is another factor. The lenders desire to see that the borrowers aren’t living beyond the means. Many people say that ratings improve if the credit payments (non-mortgage) don’t exceed more than 15 % of the after tax income each month of the borrower. 3. Lenders see things like longevity in the borrower’s job and home (a minimum of two years) as a sign of stability and responsibility. Although, they have nothing against better offers from different companies or business expansion plans. 4. With re-aging, the account’s date of the last action is changed. This can alter the credit rating considerably. There are several guidelines which clarify re-aging in accounts. 5. The lenders consider accounts having balances closer to their limits as more risky. Inquiries are noted on the credit file of a consumer whenever any company requests information from the individual’s file. These inquiries might or might not affect the credit score of the consumer. Depending upon the effect on the worthiness or credit rating, the inquiries are divided into soft and hard enquiries. The soft inquiries don’t have any effect on the credit rating and some of these inquiries are: 1. Pre-screening inquiries: these are inquiries in which the bureau sells the consumer’s information to a company which issues loans, credit cards, insurance, loan etc. on the criteria(s) established by the lender. 2. When creditors check the credit files of their customer periodically. 3. When any credit counselling agency obtains the consumer’s credit report (with his/her permission) regarding identity theft. 4. Or when a consumer checks his/her credit report. Hard inquiries are those which do affect the credit rating of the consumer. When consumers seek a loan or credit, then the lenders make ‘hard’ inquiries (connection with permitted purpose). When the lenders are granted permissible purpose, they can ‘pull’ the consumer’s file to extend credit to the user. These inquiries can directly affect the credit rating of the consumer. The credit rating can be helped by keeping inquiries to a minimum. If a consumer has many inquiries on an individual’s report in a short span of time, then the lender might perceive it as a sign of financial problem, and might even consider that individual as a credit risk. Unused credit cards can also affect the credit rating. It is believed that having a lot of credit cards can adversely affect the credit score, but closing credit lines might not improve the rating. Credit ratings are useful in determining whether a lender should give loan or credit to the borrower or not and people should always attempt for positive ratings to access credit at the right time. Visit free-credit-reports.com for more information on credit report and identity theft.
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