Advantages & Disadvantages Of Credit Rating

People with good credit tend to think that credit ratings are a good thing because their high financial status allows them to enjoy certain advantages. Those with low credit ratings often have an opposite view because they have trouble getting loans and usually get the worst terms on any type of account.

You can enjoy the advantages and avoid the disadvantages if you know what goes into your credit rating and keep it high. Your credit rating is determined based on the information that appears in your credit reports. They list your demographic information, including name, current and prior addresses, phone number and Social Security Number. They also contain your employment information, loans and credit card accounts.

Any financial judgments such as liens will appear too. Creditors may review your credit reports or check your credit score, a three-digit number distilled by Fair Isaac Corpation from all the data. The main advantage of a credit rating is being rewarded for managing your budget and finances responsibly. This qualifies you for the best credit card offers, including low interest rates and cards that give you gifts, points, airline miles or monetary rewards.

You will get low interest rates on other types of loans, and your applications will be approved quickly. You will qualify for insurance at preferred rates, and a good credit rating makes you look more attractive to employers as well. Your credit rating can hurt you even more when you are already having financial problems.

The rating will go down if you lose your job, have a medical emergency or fall behind in your bills for some other reason. This will keep you from getting credit at a time when you might desperately need it. Your credit rating can lock you into a subprime category.

You will pay extremely high interest rates for any loans you manage to get because your rating marks you as a high-risk borrower. You may have trouble making on-time payments because the loan is so expensive, which keeps you from improving your rating and thereby locking you into a negative cycle.

Most of the items that can affect your credit rating remain on your credit reports for seven years, the TransUnion credit bureau states. Certain bankruptcies can be reported for ten years, and debts owed to the government will stay on forever if they are never paid. Items remaining on the report for a time frame is an advantage for people with a good history because it shows they can maintain financial responsibility for the long term.

It is a disadvantage for those who might have hit a temporary rough period. Skipped payments, repossessions and other problems during that time frame will affect the credit rating for seven years, even if you straighten things out after a year or two. It is up to you to make sure your credit history is being reported correctly by the credit bureaus. Otherwise the advantages of your financial responsibility will be destroyed by erroneous negative items that pull your rating down.

You may not even know they are there until you are turned down for credit or told by a lender that your rating is bad when you know it should be good. You can head this problem off by reviewing your credit reports regularly. There are three bureaus (TransUnion, Equifax and Experian), so you can cover the whole year if you get one every four months. Lose Weight. Feel Great! AGE lbs. WEIGHT ft. What Is a High Credit Rating, How to Remove Foreclosure From Your Credit Report How Do Medical Bills Affect Your Credit Score, 3 How Do Medical Bills Affect Your Credit Score,

When starting a dieting and exercise program, one of the first things you are advised to do is figure out your current calorie consumption, and then set goals for reducing it. In personal finance, a budget is your tool to help you figure out where the financial flab is located. If you enjoy working with computers a simple Excel spreadsheet can be used to help you build your budget. Otherwise, a pad, pencil and calculator will do just fine.

First, you want to determine exactly what you spend each month, by category (mortgage, utilities, food, etc.). And also you want to separate your expenses by these additional categories: essential, non-essential and extraordinary items. Essential things are those items you have to pay each month, such as your house payment.

In business, these would be called your fixed costs. Non-essential items are those things you have a choice about. It doesn’t mean they are luxuries; it could be that cup of premium coffee you pick up each morning on the way to work. These are discretionary expenses that you could consider cutting to meet your goal of debt reduction.

The last category, extraordinary items, is the one that trips up so many of us. Extraordinary in this case means expenses that crop up on an irregular basis but typically occur each year, or maybe several times a year. 6,000. This is why your detailed analysis of current expenditures can be so revealing. You may forget the cost of repairs and maintenance on your home, or your car, over the course of the year. We might also overlook medical expenses or veterinary bills.

It’s hard to budget “trip to the emergency room for my cat” but if you see over a period of years that you have these types of bills each year, you need to include them in your budget. If you don’t, these end up being unwanted additions to your credit card balances.