A credit rating is one of the most essential tools banks and lending institutions have when determining whether a borrower can repay a loan.
Depending on the country you live in and the institution you are looking to borrow from, your credit rating might be comprised of different statistics.
Essentially, any entity looking to borrow money from a bank or other institutional lender has a credit rating.
What Is a Credit Rating Agency?
Credit ratings are important when banks decide whether to grant a loan. This practice has now turned into a business venture.
Credit rating agencies analyze customers’ spending and credit history to prepare their credit ratings.
Some companies focus on evaluating credit scores for individuals, while others focus on assessing the credit rating of big companies, national banks, and even countries.
How to Calculate A Credit Rating?
Personal credit scores are calculated based on several factors.
Most importantly, credit rating agencies consider your settled debt, current outstanding debt, how well you have been paying it, and your monthly income.
Additionally, your homeowner status plays an important role. If you own your home but have a mortgage, this might affect your credit rating.
Types of Credit Rating
Depending on the type of credit or loan you want, there can be a short-term and long-term credit rating.
Your short-term credit rating determines the likelihood of you getting credit for a smaller amount and fewer repayment installments.
Your long-term credit rating estimates whether you’ll be able to pay a more significant credit for a more extended period.