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Your credit rating is an important number generated by credit reporting agencies. Banks and other lending institutions use your credit rating as a benchmark of your credit worthiness. They consider it to be a sign of how likely you are to pay back the money you borrow from them.

Credit Worthiness and You

Your credit worthiness affects more than just your chance of getting a loan. Organizations other than lending agencies also use credit ratings as a form of character reference. For instance, a prospective employer may wish to see a credit rating before hiring you. Some landlords view credit worthiness as a means of determining how desirable a tenant you would make.

Credit reporting agencies are also used by insurance agencies. Before making changes to your automobile, health, or life insurance rates, many insurance agencies check your credit rating first to determine if you are a good financial risk.

What Credit Reporting Agencies Must Ignore

Credit reporting agencies provide credit rating information to lending institutions. While credit reporting agencies can take many factors into consideration, certain information cannot be included when compiling a credit report. Your ethnicity, religion, gender or marital status will not affect your credit rating.

Financial difficulties such as bankruptcy or defaulted loans will affect your credit rating, but not permanently. Credit reporting agencies will only report default loans for seven years, after which they are removed from your credit history. Bankruptcy affects your credit rating for longer: a bankruptcy remains part of your credit history for ten years.

Credit reporting agencies will also check how many credit inquiries have been made for an individual over the last two years. Too many credit rating checks don’t look good. By the same token, an individual without any credit checks isn’t building a credit history and also receives a low credit rating.

Avoid Damaging Your Credit Score

The best way to ensure that you have a good credit score is to keep your personal finances, particularly your spending, under control. If this is difficult for you, get help with financial planning by asking friends and family for advice or speaking with a financial consultant. If you default on your mortgage payments, fail to pay your electricity, gas and telephone bills regularly, or are regularly late with your payments, the credit reporting agencies will be informed and your credit score will be negatively affected.

Rebuild Your Credit Rating

Some companies offer special credit card deals to individuals who have low credit scores. As long as you make your monthly payments regularly, this type of card will allow you to rebuild your credit rating, although you will probably have to pay a slightly higher rate of interest than if your credit rating is good.

Reporting Credit Rating Mistakes

Credit reporting agencies can make mistakes. It’s possible to receive a bad credit rating based on inaccurate or outdated information. For this reason, it’s important to know your credit rating and have some idea of what is listed in your credit history. For a small fee you can get a copy of your credit report from one of the credit reporting agencies: Equifax, Trans Union, and Experian/TRW. Some online financial institutions will give you a copy of your credit report for free. Ask questions if your credit rating doesn’t seem accurate: with proper verification, credit reference agencies will remove or add information from your credit history.