When shopping for a credit card, one of the most important factors in your decision will not be the card itself, but will actually be your credit rating.
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Understanding Your Credit Rating When Shopping For a Credit Card
When shopping for a credit card, one of the most important factors in your decision will not be the card itself, but will actually be your credit rating. Your credit rating, or credit score, will determine what sort of cards that you can qualify for and will determine your interest rate. So a few points in the downward direction of the credit scale could mean the difference between that low APR card with a high limit verses an enormous interest rate and very little buying power. So it is very important for you to understand what your credit rating is, how it is affected and how you can improve your credit score.
A credit rating is the financial world's way of determining what is known as credit worthiness of an applicant seeking credit for any variety of reasons; not only credit cards but auto loans, mortgages, even rental application and utilities. Your credit rating is derived from three key factors: Your financial history, the amount of income and current value of assets, and the total amount of your liability or debts. Your financial history includes credit and monetary accounts that you have held in the past, if those accounts are current and how timely payments were made. Current assets can include not only your income but the value of any real assets such as property, etc. And finally your liabilities include whatever debts you currently have and both the total amount of the debt along with the monthly payment commitment is taken into account.
Credit Bureaus compile this information and give you a score based on all of the above factors, this score is your credit rating. There are three main credit reporting agencies which include Experian, TransUnion, and Equifax. Each of these agencies use a slightly different method for calculating your credit score, FISCO being one of the most popular and used the most by mortgage companies and others who try to assess the risk involved in extending you credit. These scores generally range from 300-850. Scores in the lower range is considered bad or poor credit, higher range is good credit, etc.
Some credit card companies will only approve applications within a certain range of scores. Others will have a much broader range that they will accept; however, they will adjust interest rates and fees to make the risk more beneficial for them. Those applicants with exceptionally poor credit or with no credit history at all can also find guaranteed acceptance or secured cards that will help to establish (or re-establish) their credit. So it is very important for you to review your credit report periodically for accuracy and to know what your score is so that you might better assess your credit options. Keeping up with you payments in a timely fashion and not over extending credit will help to improve your rating. In the U.S., consumers are entitled to one free credit report per year so be sure to take advantage of this.
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