Why Bother With Credit Scores?

A credit score is a number that determines a person's creditworthiness

. An individual with a low rating is perceived to be more likely to default on a loan or any financial obligation than someone who is rated favorably.

These grades are provided by evaluating companies, which use different sources of information as a basis in making their computations. Information taken into account in calculating the grades includes payment history and amount of existing debts, among others.

People who are notorious for late payment of regular bills, like those for electricity, cable television, and telephone line, are assessed poorly. On the other hand, individuals who settle their liabilities earlier than the maturity dates are given high ratings.

Moreover, those who are buried in huge debts may be assigned low scores, while people with minimal amount of financial obligations may be given better evaluations.

Banks and other lending companies largely consider the ratings assigned to an individual to decide whether or not to approve his loan application. If these lenders still opted to extend a loan to someone with a poor score, they are likely to slap him with high interest rates. Alternatively, those with good evaluations may even enjoy privileges, besides low interest rates, such as easier payment terms.

Meanwhile, utility service providers also consider these evaluations in deciding whether to grant service requests of potential clients. If a mobile phone company learns that an individual applying for its service has been delinquent on his past obligations to other utility service providers, then the firm might think twice in accepting his request.

In addition, real property owners also take into account the assessments made by the evaluators in deciding whether to accept a person as a tenant or not.

Furthermore, some employers are fond of hiring people who are highly rated and are turned off with applicants that have poor scores.

Given the huge impact of one's grades in his ability to engage in various transactions, it is important to maintain healthy ratings. Being given low scores should not be taken lightly by anyone.

Being rated badly, however, does not mean a person will forever be suffering the adverse consequences. He may take some actions that could help improve his scores. Depending on one's response to ratings, these numbers may change from time to time.

He may imbibe the habit of paying monthly bills on or before the due dates and close down unnecessary credit accounts.

Doing such things will eventually make evaluators perceive him more favorably in the future and assign him better grades.

by: Leo Chu

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