A poor credit rating leads to higher interest rates or even refusal of a loan by the lender because it indicates a high risk of default.

In the United States, an individual's credit history is compiled and maintained by the credit bureaus, which are companies that buy and sell this information with the lenders and interested parties. The main credit bureaus are Experian, Equifax and TransUnion.  A relatively new credit bureau in the US is Innovis.

Statistical analysis of the available credit data usually determines one's credit worthiness.  A common form of this analysis is the credit score, a three digit number provided by an independent financial service company, such as the Empirica score, the Beacon score or the FICO score by the Fair Isaac Corporation, who pioneered the concept of credit scoring in the1950's.

The credit score, along with the summary of the individual's payment history contained in the credit report affects one's ability to borrow money as well as the cost to borrow it.

The factors that influence a person's credit rating include one's ability to pay, amount of credit used, total debt, spending and saving patterns, and interest to be charged.

Credit scores for individuals are assigned by credit bureaus while credit ratings for corporations and sovereign debt are assigned by credit rating agencies.

The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. These are assigned by credit rating agencies such as Standard & Poor's, Moody's or Fitch Ratings and have letter designations such as AAA, B, CC.  The Standards & Poor's rating scale is as follows: AAA, AA, A, BBB, BB, B, CCC, CC, C, D. Any rating lower than a BBB rating is considered a speculative or junk.  The Moody's rating system is similar in concept, but the verbiage is a little different, as follows: AAA, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C.

The largest credit rating agencies (which tend to operate worldwide) are Moody's Standard and Poor's and Fitch Ratings.

When a person fills out an application for credit at a store, from a bank, or for a credit card, his or her information is transmitted to at least one of the credit bureaus, who then match the name, address and other identifying information from the application with the data in its files. This information is used by lenders to determine the applicant's credit worthiness or willingness to repay the debt.  Lenders want consumers to pay their debt obligations on time. A history of timely payments shows a willingness to repay, and is a good indicator of future debt performance.

The other factor a lender uses to determine whether to provide credit to an applicant is income. Having sufficient income shows ability to pay. Lenders calculate an applicant's debt in relation to his or her income to determine a debt ratio. A low debt ratio is less risky for the lender and is likely to be approved when coupled with a good payment history. Higher incomes can sometimes be approved for higher amounts, if the debt ratios are low. As the monthly debt increases, the income must rise proportionately, or there won't be sufficient discretionary income (that which is available to cover additional debt) for the lender to feel secure in approving the loan.

Lenders require a balanced combination of willingness to pay (credit history) and ability to pay (income) to comfortably approve applications. If one of these is lacking, it is difficult for the lender to justify having the loan on its books since it is more likely to end in default. If both are deficient, there is little to no chance for approval. The strength of these factors helps lenders determine whether to extend credit and on what terms. Almost all lending in the financial services industry uses "risk-based" pricing, where the greater the risk, the higher the interest rate charged. The credit report's importance is increasing since it is the primary and often the only element used to determine the annual percentage rate (APR), term of repayment, and other contractual obligations of the loan or credit card.

• Payment record (Paying bills after the due date, especially more than 30 days after, will lower the credit rating)
• Debt Control (Living beyond one's means is having more debt than one's income can cover. The rule of thumb is that non-mortgage debt payments should be less than 15-20% of one's monthly income.)
• Stability and Responsibility (Longevity in one's home or at one's job is a good sign of stability - usually over two years at each. Frequent moves or job-hopping are considered unstable and much riskier for a lender.)
• Debt Outstanding (Keep balances on credit accounts well below the limits. Lenders look down upon accounts that are at their limits and prefer to see the balance no more than one-third of the account limit at any given time. Total debt in relation to available credit limit is also of consideration. Having some accounts open with no balances keeps the overall debt versus available credit percentage lower.
• Credit Inquiries (An inquiry is a notation in a credit history file that indicates the credit report was generated for a lender or interested party. There are several kinds of notations, some of which have negative effects on the credit score; others have no effect. A "soft pull" does not affect the score. Too many "hard" inquires, those that are applications for credit purposes, directly affect the applicant's credit score. Too many inquiries over a short period of time may indicate to the lender that the applicant could be having financial difficulties or trouble getting financing and will possibly consider that applicant as a poor credit risk.)
• Too many accounts (Although it is believed that having too many credit cards can have an adverse effect on a credit score, closing the accounts does not necessarily improved the score. The credit rating formula would adjust the number of accounts downward, while at the same time reducing the total amount of available credit. This has the effect of making the consumer look as if he or she is more leveraged with debt. This formula also factors in the length of time an account has been open, so closing an account with several years of history is another potential credit mistake that could be avoided.)

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Some examples of "soft pulls" that don't affect the credit score, are as follows:

• A consumer contacts the credit bureaus for one free copy of his or her credit report from each bureau per year and buys additional copies as often as desired.
• The credit bureaus sell a person's contact information to advertisers for the purpose of an advertiser pre-screening applicants based on certain criteria for a credit offer, such as a credit card, loan, or insurance product.
• A creditor checks a client's credit periodically.
• A credit-counseling agency, with the client's permission, obtains a credit report with no adverse action.
• An employer checks an employment applicant's credit history before extending a job offer.

"Hard inquiries" are made by lenders when applicants are seeking credit or loans. A permissible purpose, as defined by the Fair Credit Reporting Act, is necessary for anyone, including lenders, to be granted access to pulling credit reports.  Checking a credit history for the purposes of extending credit to a consumer would be granted a "permissible purpose," provided the entity applying for permission meets certain other criteria as well.  Each credit bureau has its own standards, but they are all pretty similar.  Keeping hard credit inquiries to a minimum can help a person's credit rating but will not make up for a poor overall history.

With a good credit rating, there are more lending possibilities available to you.  Unsecured loans and credit lines for personal use, military personnel, or businesses are examples of financing that are available primarily to people who maintain a good credit rating.  How is yours?  Elite Loan Capital can help you find out.

Let Elite Loan Capital do the work and expedite the process for you.  Our experts can save you time and money.  We will find you the best programs to suit your specific needs. Call us toll-free now at 888-705-5007.  Or fill out our More Information request form below and one of our consultants will contact you at the time you specify.  We look forward to helping you achieve your dreams!