A credit rating is an assessment of a borrower's creditworthiness in terms of being able to pay back debt and other financial obligations. In other words, when you apply for credit, a lender will use your credit rating in conjunction with your credit history to determine how likely you are to make your payments on time. The higher the credit rating, or credit score, the more likely the lender is to extend credit at a lower interest rate.
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To calculate this credit rating, the three major credit bureaus - Equifax, Experian, and Transunion - take recent credit history that lenders report to them each month and compile this information to determine an individual's credit rating. This numerical score is determined based on a number of factors such as payment history, percentage of credit used, number and age of accounts open, and missed payments. Though credit scores vary slightly across the different bureaus, the score is typically within the range of 300 - 850, with 781-850 generally considered an excellent credit rating.
It is important to regularly monitor your credit rating and do your best to maintain good credit by paying at least the minimum monthly payment on or before the due date and maintaining a balance that is less than 30% of your overall credit limit.
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