Understanding Credit Ratings

Understanding Credit Ratings
Understanding Credit Ratings

If you’ve ever tried to take out a loan and found yourself rejected because of your credit rating, then you’ve probably also found yourself cursing the day that credit were ever conceived – and perhaps also wondering what good they could possibly serve. Here then we will look at credit ratings, what they actually are, and how you can work with yours rather than against it.

Credit is essentially any kind of loan – a credit card for instance is a card that allows yourself to give yourself small loans whenever you need them so that you can afford things on a day to day basis that you otherwise wouldn’t be able to – without needing to go begging to your bank. Of course car loans, mortgages and student loans all work in the same way. Now whenever a company hands out any kind of loan, that means that they are investing in you, just as someone might invest in stocks and shares. In other words, they are putting their money into you in the hope that you will improve financially and so be able to give them more money back as per your agreement. That means they’ve made a return on their investment and if that happens credit ratings improve.

However many times this won’t go to plan, and loans will be given to people that can’t pay them back. This then means that the company has essentially made a bad investment, just like buying poor stock that goes South rather than increasing in value. This means they don’t increase their investment and actually lose money instead. Thus the lenders such as banks and loan companies came up with credit ratings which would essentially allow them to identify good and bad investments so that they knew where to put their money. If you fail to pay back a loan for instance, then the lender will put a black mark on your credit rating so that others don’t lend you the money. The credit ratings are the credit companies protecting themselves by teaming up essentially.

Thus the most important way to improve credit ratings is to pay back loans. This means making your repayments on time, and it also means actually taking out loans in the first place so that you can demonstrate your ability to pay them back. Other things can also effect your credit ratings such as who you live with (and what their credit ratings are like) but still the most important aspect is your own ability to pay them back.

While credit ratings might seem like a huge burden, it is important to realize that they allow banks and lenders to provide loans with lower interest, and in some cases to provide loans at all so they do serve a purpose and can be on your side if you learn to control your own credit ratings.

11 thoughts on “Understanding Credit Ratings”

  1. Credit ratings are very important. I know when I moved out of my parents house I found that out. No one would give me a loan. I had no credit established. Everyone said my rating was too low!

  2. OOH, now i get it. Now I finally got to understanding credit ratings. I was really curious about it. I might take a loan in the near future. So understanding credit ratings is extremely useful.

  3. All the americans should read this. Understanding credit ratings is crucial when deciding to take a loan. Make sure you read everything written here. You can also google for additional information. You can’t do better.

  4. This is an informative article. I like it. Understanding credit ratings is something you can’t leave your house without knowing, if you plan to take a loan. It is really complicated if you refuse understanding credit ratings but you continue with your plan. Trust me, been there, done that.

  5. If you want people understanding credit ratings, you need a longer article. Also, some need this explained in a baby language. As they really cannot get it.

    Anyway, the post is good. I like it and understanding credit ratings is easy now.

  6. I have never had a low credit rating. When I was 16, I took out a loan for my first car. My dad cosigned on it. I paid it all off. By the time I was 18, I took out another loan for school and was able to get it paid off. I think that this helped me with my credit.

  7. I have a decent credit rating now. I credit it to paying bills back on time. I have never been late on a bill yet. Nor do I plan to be.

  8. Those people who refuse understanding credit ratings and still take credits do a bad thing. You shouldn’t do that. Always learn as much as you can about credits, loans and stuff like that. Understanding credit ratings is not difficult, if you really want to take a good loan.

  9. Understanding credit ratings makes it easier to get a credit. I’d say much easier. I had a friend who took a loan some time ago. Well, before he did that, he took some economy classes. He learned so many things, understanding credit ratings was not difficult for him.

  10. Understanding credit ratings should not be difficult. A good credit rating will get you the loan you need. A bad one won’t. A bank rejected my file for a bad credit rating. Now I am happy I got rejected, the loan proved to be ineffective.

  11. I guess banks are obligated to help customers with understanding credit ratings. They should also teach you how to improve it. It is not that easy peasy, but it is doable.

    PS: if a banker ever tells you have a “just okay” credit rating, you might not want that loan. This is from my past experience.

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