This Credit Grade Guide is designed to help you assess your credit rating and what type of terms you can expect from a lender based on your credit. This is a general guide and may not apply to every lender or situation; some lenders have their own credit evaluation methods and grade credit differently. Credit is normally scored on an “A” to “D” basis. The more serious the credit problems, the more the grade decreases. “A” is considered to be good credit, “B” is above average, “C” is average and “D” is below average. An “A” borrower cannot have a bankruptcy anytime within the past ten years, whereas a “D” borrower could currently be in bankruptcy or foreclosure. As the grade on loans decreases, lenders generally assess higher rates and fees. If you have “D” credit, you may be denied a loan, or you may be charged more fees and a higher interest rate since you will be perceived to be a higher credit risk. Credit is broken into three primary categories:
Mortgage Credit is a record of the payment history on your existing or previous mortgage, which is a very important factor in determining your credit grade. Repayment history on mortgage debt can be a good indication of a borrower’s attitude toward their mortgage obligations, which is why lenders take a close look at this when considering whether or not to extend credit.
Consumer Credit is a category that relates to installment and revolving credit. Installment credit encompasses longer-term credit that has structured payment plans, such as a car loan or student loan. Revolving credit encompasses department store and bank credit cards. Generally, these types of creditors will report payments received thirty days or more past the due date as late with the various credit reporting agencies, so it is important to be diligent when repaying these obligations as it could positively or adversely affect your credit standing.
The third credit category relates to public records such as bankruptcies, collections, foreclosures, and judgments.
Understanding credit and how to improve it is best left to the experts. Thomas Johns has a popular blog that gives excellent advice on the subject. Check out some of his articles at www.tomtalkscredit.com.