Nowadays credit rating is known by another name, credit score. Even a few years back the credit bureaus used to give out a summarized result of your credit history which they called credit rating!
Credit rating somewhat looked like a report card, full of initials and numbers. You can easily mistake it for a puzzle game. Its job was to determine how efficient you are at handling credits!
But things have changed, and now credit bureaus publish your unique credit report and attach a credit score beside it!
You can surely call this combination of credit report and credit score your overall credit rating!
It’s pointless to argue why you should take credit rating seriously. Not only because it will help you get better loan terms, but also better career opportunities. Your credit score can be anytime used in job interviews, analysis of criminal records, visa approval, etc!
A good credit rating is an essential component of your credit portfolio:
Credit diversification or mix is something you could have been hearing lately. To break the ice, your credit score is pretty much comprised of overall credit mix!
The more positive credit accounts you have, the better are the chances of future credit approval from lenders, you have! Your credit portfolio is dependent mostly on your credit rating (aka credit report and score). On your credit report, you have a listing of all your credit accounts.
When a lender approves you a loan, he will scan your credit report thoroughly.
Guess you don’t want to give an impression of bad credit rating. A good credit portfolio is what a lender looks for in a potential borrower.
A summary of why credit rating is important
- Good credit rating means good credit rates:
With a nice and clean credit rating, you really have nothing to worry about interest rates. You can easily get the ball in your court while taking out credit cards or loans.
When the lender sees that you have a nice credit score or a credit report, you are definitely going to be offered low-interest rates with the best terms and limits!
- Credit rating influences career opportunities:
These days, credit score and credit reports are verified by employers when you apply for job interviews and especially for jobs related to management and commerce.
A good credit score speaks a lot about a consumer’s character, spending habits, and lifestyle. So take credit rating seriously if you want to get hold of better jobs!
- Credit rating is mainly used in the field of business and investments:
As said earlier in this post, traditional credit rating is no more used for individual consumers. We now use credit score and respective credit reports usually from the three major credit bureaus, Experian, Equifax, and Transunion.
But credit rating plays a major role when it comes to investment vehicles.
Investors and businessmen buy debentures, securities, bonds, funds or debts, by looking at the credit rating of the respective product.
The rating is usually from ‘AAA’ to ‘CCC’, that is ‘lowest risk factor’ to ‘highest risk factor’!
Discussing credit rating for investment products and their evaluation is not meant to be covered in this post.
But if you are planning for investments, then you seriously need to understand how credit rating is used in this field.
End note:
Credit score and credit report are for general consumers and individuals. Reports are delivered by the three credit bureaus, Experian, Equifax, and Transunion.
In the contrary, Credit rating is provided for investment vehicles and other financial tools. It determines the risk factor of an investment product. The ratings are given by three credit rating agencies, Moody’s Investors Service, Standard and Poor’s, and Fitch Ratings!