What Does a Bad Credit Rating Mean

Your credit rating is based on the information contained in your credit report.

If you have a bad credit rating you may not understand why, but it is because your credit history is not the only criteria.

Lenders use three types of information to determine your credit rating:

1) The lender's personal evaluation of your potential. Objective criteria give the lending institution a pretty good idea of how you stack up as a credit risk.

2) A credit scoring system. Banks and similar large lending institutions, such as finance companies, savings and loan companies and credit unions, generally employ a scoring system used to rate your creditworthiness. This system takes various issues into account.

3) Short-term-debt-to-income ratio. Lenders will calculate what percentage of your annual income your short-term debt represents. You are generally allowed no more short-term debt than 15 to 20 percent of your total annual income.

As you look at your credit information, you will discover weak points that stand in need of improvement as well as positive points that can be emphasized.

In addition, you will know the amount of credit for which you qualify given your income, net worth, credit record and other relevant factors.