Credit rating is used to assess the credit worthiness of the subject being analysed. For example, people, companies or even countries can have their credit worthiness analysed. These evaluations are important because the rating you get determines the interest rate you get, and in some cases determines whether a loan is given or not. [...]
Credit rating is used to assess the credit worthiness of the subject being analysed. For example, people, companies or even countries can have their credit worthiness analysed. These evaluations are important because the rating you get determines the interest rate you get, and in some cases determines whether a loan is given or not.
Credit ratings are calculated from financial history. The body evaluating you will go through your balance sheet, assets and liabilities and determine the probability of you being able to pay off the loan you have applied for. In recent times, this process has also been used to determine insurance premiums and eligibility for employment. A poor credit rating can be very detrimental to your personal or corporate entity as you will find yourself having to pay higher interest rates or being rejected for loans.
Personal credit ratings are affected by the amount of credit you use, your saving and spending habits, debt and your interest/ability to pay a loan. All these things are examined before a credit rating is issued. For companies, the credit rating is actually done on a rating scale that tells investors the potential of debt securities such as bonds.
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