Credit Score: Why Is It Important to Raise Your Credit Rating?

Your credit score is an indication of how you behave using your credit card. Your bank or your creditor will assess you using your score. Depending on your current rating, you may or may not have the ability to get creditcards, mortgages, and loans.

A credit card is a versatile financial tool that can be used to pay for almost anything. You can get a mobile phone, rent a car, book a hotel room, and even travel overseas with your card. There are many factors that affect your overall score. Oftentimes, when you misbehave, your credit score will suffer.

What is a Credit Score?

When you use your credit card, you are basically borrowing money from your creditor. From the time that you signed up for the card, you have made a promise that you will pay for the money that you owe. There is a specific timeframe for the payment, which you should follow.

If you have a high score, it essentially means that you have the ability to pay back the money you owe. A credit score is made up of three digits from 300 to 850. The method of calculating the score remains unknown. Credit bureaus have their own ways of evaluating the credit report of an individual. Some of them consider only the information found on your report while others take other financial aspects into account. In general, though, the primary factors used to compute your credit score include your payment history, the age of your credit card account, frequency of applying for new credit, credit type mix, and your current debts.

Aside from credit or FICO scores, you may also be rated from 0–9 for your personal credit account. On this particular rating, an “I” for installment credit or “R” for revolving credit appears before the number. Your creditor will issue a separate rating for your accounts. For instance, you may have an R1 for your Visa account. This is considered the highest level for credit ratings. Simultaneously, you may also be rated an R5 for your MasterCard. This usually denotes that you have neglected to pay your bills for that specific account for months now.

Credit Score Matters

When you decide to apply for a new credit card, loan or mortgage, the financial institution will take a look at your credit rating. Credit reporting is necessary because this allows stores to receive checks as payments and for banks to issue debit and credit cards. As you present your credit report, you give them information about how risky you are as a customer. Financial theory states that high credit risk means that an account should be added a risk premium. If you have poor or limited credit, creditors will not shun you. Rather they will approve of your application but with a higher interest rate.

Your credit rating is in a continuous flux. Credit activities may or may not affect your score. Regardless, it always pays if you improve your credit rating or at least maintain a reputable score.