Credit is the provision of resources, usually of monetary value or its equivalence, from one party to another. In laymen terms, it is another word for your trustworthiness in the eyes of banks, lenders, and other financial institutions. The higher your credit (level of trust), the more willing a lender is in granting you monetary credit (such as a loan, mortgage, or credit card). Utilized correctly, credit can be a powerful tool that will really help you go the distance in life. How much credit a person has highly depends on numerous factors calculated into what is known as a credit rating.
Credit Rating
A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. Two tools are commonly used to access a person’s credit rating. They are a person’s credit report and credit score.
Credit Report
A credit report lists and details a person’s credit history, their past and current record of outstanding balances, money they’ve borrow, and their repayments. It list in detail whether or not you’ve made your payments on time, have had any delinquent or late payments, and whether or not you’ve ever defaulted on a payment (not pay back the loan within a reasonable amount of time).
Credit Score
Base on your credit history, borrowing and repaying habits, and a few other factors, you’re given what is called a credit score. A credit score typically ranges between 300-850. The higher the score, the better your credit. The lower the score, the worse your credit is. Your credit score is also known as a FICO score, named after the Fair Isaac Corporation who developed it.
Major Credit Bureaus
There are three major credit bureaus, also referred to as consumer report agencies, according to the Fair Credit Report Act (FCRA). They are Equifax, Experian, and TransUnion and they are the most widely recognized throughout the United States. These are the main three bureaus that practically all lenders go to when they need to find out how much credit a person has or what their credit history is like to measure the risk of lending out money to any given person. They are the only three most consumers are concerned with when looking up credit ratings such as credit reporting or credit scores.
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