A credit rating is the impression that credit bureaus have of a person based on a large number of factors, largely focussing on their past behaviour towards credit. Past experience from banks has shown that the way in which credit was dealt with in the past has a large bearing on how credit is dealt with when it is given again
Credit ratings are a very important part of the credit application process. When applying for credit cards, the credit score is one of the most important factors on whether a credit card will be provided, and what the interest rate and the credit limit that are allowed. However credit cards can also affect credit ratings.
Credit ratings affect more than credit cards they have implications for all other credit products such as lines of credit, home loans and personal loans. As well as credit the credit ratings can also affect whether insurance, employment or tenancies are granted. Credit ratings are being used in more diverse ways and therefore becoming more important to protect.
The amount of applications for credit cards that a borrower makes, particularly when made within succession of each other can have an impact on the credit rating itself. The implication of frequent applications for credit is that a person may be desperate to borrow money and so they are likely to be in, or soon be in financial trouble ie have just lost a job. This behaviour ( applying for multiple credit cards within a short period of time ) generally raises red flags to the potential lenders, even if the applicant has applied for multile cards just to speed up the approval process.If time is of the essence one is better advised to apply online for an instant approval credit card to get a response immediately, then applying for multiple cards at once.
The actual number of credit cards that a person holds used to be an essential factor in the equation. It is not such an important today as credit cards have become more available, and holding a number of credit cards id very common. The available credit can be a more pertinent issue. The amount of credit a borrower has available is usually not a significant factor except when the amount of credit is a number of times a person’s income. In these cases the amount of credit can be seen as being dangerous, and so a borrower may wish to check their credit limits as these are counted towards the credit available.The ratio of credit being used is a very important factor. If the credit that is offered is almost entirely taken up then this can cause bad marks on a credit score. For example If you have a $3000 balance on a card with a $6000 limit you are up around 50% of your potential and this is around the maximum you want in order to maintain an optimum credit rating. A balance of $3,000 on a credit card with a $10,000 credit limit is a much healthier proportion. In a nutshell the lower the debt credit ratio is the better the credit rating figure will be. In this way lowering the ratio and improving your credit rating can be as simple as requesting a higher credit limit.The opposite; having credit history, can have adverse effect on a credit rating therefore the balance is fine.
