Why Your Credit Rating is Important

Why Your Credit Rating is Important

When you apply for a Mortgage, Credit Card, Car Loan, or even a Cell Phone, your credit rating is checked. Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them.

According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders will typically not completely shun you; instead, they'll lend you money at a higher rate than the one paid by someone with a better credit score. Thus knowing your credit score and knowing HOW your credit score is developed will enable you to get the highest credit scores possible.