What is a credit rating?

If you are an adult who has ever bought anything that you didn’t have all the money for up front, you should be aware of what a credit rating is and what it actually entails.

You should also know how it affects you and what you can acquire without actually needing cash to pay for it.This is a number that let’s potential creditors get an idea of how likely you are to repay your debts.  The credit rating is represented as a number and is based on your past history of paying your creditors.

Some of the items that affect your credit rating:

• How you pay your bills.  Paying your bills on time (or early) is one of the best ways to keep your credit rating in good standing.  Your credit report will list how many 30, 60, and 90 day late payments there are in addition to any delinquent accounts; and this information can remain on your credit report for anywhere between 5 to 7 years.
• If you have credit cards, paying them off at the end of each month is also a good way to keep your credit in good standing overall.  Be sure to use the cards so that they are kept active and not closed, because having an open credit active credit card with an available balance is better than having no credit cards.
• Speaking of having no credit cards, this is not a good idea if you plan on building your credit.  Keeping in mind that having no credit is often just as harmful as having bad credit.  The reason is that if you have no credit history and you try to finance a car or house, the likelihood that you will be denied is pretty high.  Without a credit history it is difficult to determine whether or not you are a good credit risk or not.
• Always try to keep an available balance on your credit cards; this will help you with improving your credit rating.  The last thing you want is to have a bunch of cards that are maxed up to their limit with charges every month, this will end up hurting your credit rating in the long run.

If you are just starting out, there are ways to establish credit as a beginner.   One of the first places those with little credit will be able to get credit is at a department store.  Department stores, like Myers, are often times more willing to extend credit to those just starting out.  Once you have that card for a while and are making your payments on time, you will usually have the opportunity to apply for a major credit card which will further help to build up your credit rating.

Understanding how credit works is always beneficial and will serve you well over the years.  Remember that when you have a high credit rating it will require a lot of discipline and control to not get bogged down with too many credit cards.  You don’t want to end up with a debt ratio that is so high; remember if this happens your credit rating can also end up suffering.