The credit rating or score of an individual is an indication of the credit worthiness of an individual. The credit rating is used by the lender to assess the risk of lending money to the individual or the business, in case of a small proprietorship firm. Though the credit score may be adversely affected by factors which are not in an individual’s control, they often provide an accurate indication of the financial health of an individual.
A poor credit rating /score indicates that the borrower is more likely to default on loan payments, and interest rates are usually higher for individuals with a low credit score. Often, a person with a low credit score may find it difficult to get a credit card or a loan. In such cases, the person has to request a friend or relative with a better credit score to co-sign for the loan.
Credit ratings/ scores are usually calculated considering the financial history, whether payments have been made on time and also current assets and liabilities. For different types of credit like home loans, car loans, personal loans, credit cards, the credit scores calculated may be different.