What does a credit rating mean? What is a credit rating?

Part of such a credit rating

Part of such a credit rating

When you apply for any loan, the company makes a credit assessment of you. They use this to assess whether you can be approved for a loan, what terms you can get and what the interest rate should be. But what exactly is part of such a credit rating, and what is it used for?

We help you gain a better understanding of the term and give you an insight into the factors that influence your credit rating. That way you can better assess what assessment you get and therefore what opportunities you have.

What is a credit rating?

What is a credit rating?

A credit rating – when we talk about consumer loans – is something the lender does on you as a customer. It is based on your financial history and your current values ​​in terms of both assets and liabilities.

The credit rating exists to make it possible to estimate your financial situation and thus also estimate the likelihood that you as a borrower will be able to repay the loan. So they use it as a type of risk assessment and a guide to what terms you can receive as a customer.

The company always does a credit check on all customers based on the information they have access to. As a rule, they use your submitted pay slips and Tax Report to make the assessment, and they get an overview of your personal finances. Through the check, they get information about the positive and negative aspects of your financial situation, and thus get a good indication of the risk of lending money to you.

All companies are required to perform this credit check and it is used to determine the final effective interest rate on your consumer loan. At the same time, they get information about your credit history, especially if you have had any payment notes or if you have active debt collection cases. This is how they can use it as a starting point when deciding whether to approve a loan.

Everything about the companies credit rating

Everything about the companies credit rating

A credit rating is thus a type of summary of your personal finances, and the bank uses it to estimate the risk of borrowing money. A poor credit rating indicates a high risk to the lender, and therefore it will mean a high interest rate or the creditor will not lend you money. A good assessment, on the other hand, indicates low risk, and you will usually get a much lower interest rate.

The credit company must ensure that you are creditworthy before you are granted a loan, and here the companies usually use a few different scales to assess your personal finances and your risk of default. Usually they use a scale ranging from 1-100, where 100 is the best.

On this scale you are not creditworthy if you get a score below 15, while from 15-30 points you can only get credit against security. If you have 30 points or more, you are creditworthy and a higher score will result in a lower interest rate.

Minimum requirements on the scale

Minimum requirements on the scale

Keep in mind that credit check is just one factor that determines whether you can qualify for an online consumer loan. Even if you score higher than the minimum requirements on the scale, you are not guaranteed to be granted the loan.

It is always up to the creditor to assess whether they will run the risk of lending you money, and there are also several factors that may prevent you from being approved such as age or citizenship. But you can always try to improve your credit rating by getting a stronger personal finance, and so you can achieve a lower interest rate on your next consumer loan.