Credit rating has always been a mystery to most of us. How does it work, how is it done etc are all deep mysteries for most of us. It would be good to learn as to how it works and what to make out of it.

Let us see how it works. How does an agency come up with a credit rating?

Actually, the process is pretty simple. Suppose you get a loan of $100 to start with. You pay it back promptly. Now, as far as that bank and that particular loan is considered, you are very worthy of next credit since you had promptly paid the first credit that you took. Now, if you have paid the loans that you took eight times out of ten, your credit score is roughly about 80%. You could be taking different kinds of loans. You could be taking loans in the form of credit card bills. The loans could be in the form of housing loans and so on.

If on a large number of people with different levels of incomes and expense levels, if you can map the scores of credit worthiness, that is what the credit worthiness of the people will be. That is where the need for such a report at a larger level is required. This is exactly what the
free credit report fulfills.