How Credit Rating Agencies Determine Credit Worthiness

Credit rating agencies play a big role in our lives. Almost every day, you do something that affects your credit score. Your credit score is determined by the market. There are three major credit bureaus that monitor credit and adjust your credit file accordingly. Many people are familiar with credit rating agencies overall, but they have no idea how they determine whether you have good or bad credit. Here are a few things to consider about how credit rating agencies determine credit worthiness.

Timely Payments

The biggest criteria that they use to determine your credit worthiness is when you make your payments. Making your payments on time every single month will increase your credit score. If you consistently make payments on time, you will usually have a decent credit score. Paying your debt on time accounts for 35% of your score. It is heavily weighted criteria. If you want a good credit score, you need to make sure that you always make your monthly payments on time.

Account Balances

Another factor that credit rating agencies look at is the amount of money you have in balances. If you have several credit cards and they are all maxed out, this will not bode well for your credit score. Credit rating agencies like it if you use credit, but they also like to see that you can manage it. If you are always maxed out, then they think that you cannot handle your money very well. Try to keep your balances to below 30% of the maximum limit on your account. This is a good number to shoot for and it will help boost your credit rating if you do. 

Mix of Credit

Another thing that the credit rating agencies look at is the mix of credit that you have. They like to see that you have a nice mix of accounts and different types of credit. For example, they like people that have a mortgage, an auto loan, revolving credit, and a store account in good standing. If you have all of those things and you are doing fine with all the payments, they know that you can handle money. As a result, they will bump up your score and lenders will not be afraid to lend to you in the future. You should not open too many accounts, and at the same time, you need to have a few different types of credit to get a boost in your score. 

Blemishes

Credit rating agencies will also look at blemishes on your credit report to determine credit worthiness. If you have a bankruptcy, foreclosure, or judgment against you, it will tarnish your credit worthiness. Credit bureaus will always find out about these items and will adjust your credit rating accordingly. The only way to overcome credit blemishes is to begin a new track record and let time make the credit report stronger. Keep making your payments on time and after two years you should have a decent score again.


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