Credit rating: Rates creditworthiness of borrowers

Credit rating involves an evaluation of a borrower's credit paying history and the risk involved in offering him further credit. Credit rating is required by lenders to judge whether the borrower has the ability of repaying his debts in time with respect to his financial status.

Features:

• Credit ratings are assigned based on an individual's debt paying history, a list of past and present credit accounts and their balances, employment history and personal details including the history of his past credit problems.
  
  
• It depends on whether the borrower has filed bankruptcy before or whether any debt collection agency has approached him for debt collection in the past.
  
  
• Such ratings also consider whether a borrower has ever come across foreclosure in mortgage or if any judicial statements are issued against him.
  

Lenders and credit companies generally provide credit rating. They review the credit information on the credit report of an individual. They also take into account the credit score assigned in the credit report by a credit reporting agency. Based on this credit score, lenders rate the credit status of a borrower. These ratings are actually grades like A-, B or C etc. The highest ranking is AAA and the lowest is D.

A good credit rating helps a borrower to qualify for loans with comparatively low interest rates. But poor credit rating may require him to pay back his credits at higher interest rates.

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