What Your Credit Rating Says About You

Our readers ask: "What is my credit rating?"

Your credit rating is an estimate of your creditworthiness. It doesn't judge you. It factors in your past credit actions, your current circumstances and calculates how likely you are to repay a loan on time. Your credit history plays a big part in this, as do your credit habits. You can change your habits, so you can also change your credit rating for the better too!

The main credit rating you will need to deal with is the FICO credit score used by most lenders in the United States. This credit score provides a lender with a numberical 3-digit score that estimates how well you follow through on credit obligations in the past, and therefore, how likely you are to repay a loan on time in the future. creditors whom you have borrowed from in the past -- whether it's a department store charge card or a local furniture store or a car dealership -- report your payment history to the credit bureau. Your FICO score is then extracted from this data, along with other factors like income, history of credit inquiries, lines of credit and the amount you owe, and credit card balances compared with the credit line extended for each card.

It is important to remember that neither the credit bureaus or Fair Isaac Co., the corporation which developed the FICO scoring credit model, can rate your creditworthiness publicly. They can only report privately to their customers -- the banks and lenders who subscribe to the FICO scoring system -- and these lenders then make the evaluation as to how much risk they are willing to take when they decide to lend you money.

If you have defaulted on past loans, or if you have been slow to make on-time payments on past credit card accounts or business and/or personal loans, then your credit rating will be lower than someone who has regularly paid their debts on time without fail.