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Credit Card Applications » News » Other » Factors that Affect Credit Report Ratings

Factors that Affect Credit Report Ratings

August 10, 2009 | Updated on August 10, 2009
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The content is accurate at the time of publication and is subject to change.

Because of credit's importance in the economy, there is a real need for quick, convenient, and comprehensive records about consumers' financial health. Creditors, lenders, and banks rely on clients' histories and credit records to be able to determine whether an individual is worthy to be extended financial services. To address this urgent need, credit reports were created.

A credit report is a comprehensive record of a consumer's important financial activities for the past seven years. By law, all credit histories should go back only seven years at most. Credit reports outline everything from credit card purchases, borrowing histories, and repayment habits. They may also include records of delayed payments and outstanding balances. Credit reports also include remarks from creditors about a consumer's balances, payment habits, and current loans.

A credit report is a thorough oversight of a consumer's financial standing. The better the credit report rating, the higher the chances of a cardholder getting higher credit lines and better loan rates. Lenders and creditors always scrutinize these records to see the credit worthiness of a potential client. If a consumer has poor credit scores, then financial institutions would always think twice before transacting with them.

Several key factors affect credit report ratings. These aspects of a consumer's financial life all play crucial roles in how credible an individual is, as viewed by different financial institutions. The most influential of these factors, late payments, often tell creditors how diligent or capable a consumer is when it comes to settling dues. Foreclosures are also indications of the probable inability of a cardholder to keep up with housing loan payments. This can directly affect a consumer's chances of getting good mortgages with low interest rates.

Opening too many credit card accounts with several outstanding balances will also tell creditors that a cardholder does not know how to prioritize and manage credit responsibly. In the same manner, overspending can severely hurt a consumer's chances of getting higher credit limits or better interest rates when applying for a new credit card.

Periodic or regular unemployment can also be considered as evidence that an individual is unable to maintain a stable source of income. Conversely, long time being unemployed can convince lenders and creditors that providing financial services to a particular consumer can be risky. Declarations of bankruptcy can also negatively impact an individual's credit report rating. Most financial institutions view bankruptcy as the "easy way out." Consumers who opt for bankruptcy are often viewed as liabilities.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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