What is a Credit Rating?

A credit rating is a score that summarizes the credit worthiness of a business or government.  It is usually made by a credit rating agency (such as Standard and Poors or Moody’s) and is based on the debtor’s ability to pay back the debt and the likelihood of default.  The higher the credit rating, the less likely the debtor is to default, thus the safer it is to loan money to them.

 

 

What Are the Common Credit Ratings?

 

Credit ratings are broken down into short term and long term credit ratings.  Some companies call them different terms, but short term ratings always look at the possibility of default within a year, while long term looks over a long time frame (such as 20 years).

 

While each rating company is slightly different in the term it assigns, the general breakdown is as follows:

 

Investment Grade Ratings

Prime Credit: AAA (or Aaa for Moody’s)

High Grade: AA (AA+, AA, or AA-)

Upper Medium Grade: A (A+, A, or A-)

Lower Medium Grade: BBB (BBB+, BBB, or BBB-)

 

Non-Investment Grade Ratings

Non-Investment Grade Speculative: BB (BB+, BBB, or BB-)

Highly Speculative: B (B+, B, or B-)

Substantial Risks: CCC (CCC+, CCC)

Extremely Speculative: CCC-

In Default: D (or C for Moody’s)

 

 

What Are They Based On?

 

These credit ratings are based on a variety of factors, but all relate to the risk that a borrower will fail to make the payments which it is obligated to do.  The risk is that the lender could lose principal and interest, and face increased collection costs.  The loss can also be complete or partial.

 

Some typical factors for analyzing risk include operating experience, management expertise, asset quality, whether they have a current account, leverage and liquidity ratios, and more.  Most lenders employ sophisticated algorithms to analyze and manage risk.  Most of these algorithms are confidential, but you can assume the basics are included, like cash flow, amount of debt, and more.

 

Furthermore, any lending is typically subject to terms and conditions on what the company can do going forward, to lower the credit risk to the lender.

Five Key Facts About Credit Ratings

Having a good credit history is very important when it comes to making an application to borrow money, and most people agree that credit ratings are extremely important. However, very few people actually know precisely what a credit rating is and how they’re constructed, so we’ve pulled together five key facts that will give you a much clearer idea about everything concerning credit.

Your Files Are Not Secret

A lot of people say “it’s too complicated to check my credit history” but it’s actually very easy with companies like CreditExpert and time extremely well spent. You have the right to see your credit rating and to make sure that any errors that are on it are corrected immediately. Most of the time the credit companies will do amend any errors for free. Bear in mind that simple things like old mobile phone contracts that were never fully cancelled can have an effect, so it’s good to do a spring clean at least once a year.

Black Lists Don’t Exist

Each lender has their own criteria of what represents the perfect customer, and it might not necessarily be the same from lender to lender (in fact, the odds are that it’s not). So, just because you’ve been turned down from one bank doesn’t mean that you’ll get turned down by another. However, it’s a good idea not to make too many applications in quick succession, as each time you do a ‘search’ will be carried out on your credit rating, and too many searches in a short period could raise the alarm.

Profit Is More Important Than Risk

Most people assume that the banks decide who they’ll lend to on a basis of risk. If you’re not likely to pay back any debt in full, they shouldn’t lend. Unfortunately, that’s not the case, if you have a perfect credit history, never have credit card debt and pay everything off in full as quickly as possible you could still be rejected because you won’t make the bank very much money. This is rare but it does happen.

Use Your Rights

As mentioned above you can correct any errors on your credit report simply by writing to the credit agency concerned, however, sometimes you may have to talk to the company who filed the report, rather than the credit agency. There are a whole strings of rights attached to credit reports, and you should never have to pay to have something amended. If you’re having real problems, you can always talk to the Citizen’s Advice Bureau.

Your Credit Score is Not Fixed

You may have seen adverts for products that will ‘repair your credit score’ and these will usually cost you money without making any difference to your score. However, there are a whole list of things you can do to improve your credit rating, whether it’s something simple like getting on the electoral roll, or cancelling an old phone contract. So, if you do check your rating and it’s not so good, there’s no need to fear the worst.

Payday is Simply Too Far Away

Cash advances are matched to your payday and will need to be returned on your payday itself. Cash advances are helpful for unexpected emergency cash needs. Cash advances are short-term cash advances meant to fulfill your urgent monetary needs. Cash advances are compact, short-term loans with higher than normal interest fees.

Cash advances undoubtedly are a short-term way to obtain credit which should be used for unanticipated emergencies along with other immediate needs. Loans which are made for people that have especially poor credit are known as bad credit Cash advances. Cash advances are occasionally less difficult and much more inexpensive than a credit card cash advance. Payday loan is also known as a cash advance, paycheck loan, or payday advance.

Cash advance is meant as a stopgap solution, not an ongoing cure for financial difficulties.

Loans are typically obtained up until customer’s up coming pay day, hence its name, cash advance loan. Cash advances certainly are a quick and dependable way of getting a money advance until your following pay day. Cash advances are extremely beneficial indeed. You will get them although you may have bad credit scores. Cash advances are absolutely hassle-free, given that they require no credit assessment. Cash advances are generally created for poor credit borrowers who may have difficulty obtaining money quickly in order to meet urgent costs.

Cash advance is generally accepted within hours, so you have cash in your bank account the very next day. Cash advance has come forth with the lone function of filling in a hole within the conventional lending solutions. Cash advance is a reasonably new idea within the customized financial services for today’s hectic society. Cash advances are amongst the fastest and most effective ways you can get a loan today. Cash advances can even be found online today.

Cash advances aren’t too costly or too difficult to settle on the next payday. Cash advances are providing you with some top notch benefits. Cash advances can assist in paying bills until you reach your next payday. Cash advances aren’t a long term solution for any real problems. Cash advances are a great way to get out of a tight situation, and they are much better than bank loans.

Guest Post by David

Managing Your Debt: How To Overcome Money Troubles

The number of financial problems affecting the people of the UK seems to be growing. With rising VAT, high inflation and many people unemployed – the highest figure in around ten years, in fact – people are consistently looking for debt solutions. Luckily, management of debt is not too difficult and people are increasingly seeking a number of clever ways to keep track of their outgoings, avoiding surcharges associated with credit cards or loans.

Before you get in touch with a debt management company, you must set out any bones of contention such as unfair bank charges, debt management plans, desires to claim back on wrongly-sold payment protection insurance, or anything like mortgage exit fees. Before you call the organisation you hope will deal with your finances, look through other information to help get a better handle of your debt problems.

Firstly, don’t ignore mounting credit card debts by avoiding mail sent by such companies. You need to seize the initiative and work out a monthly budget, deducting all outgoings and debts from your income. If there is any money spare, increase debt payments on higher interest debts or any secured loans such as mortgages; often you may only be paying off the interest.

From here, cut back on non-essentials to avoid more serious problems in the future. Small changes can have a major impact on finances. If you eat out during a lunch break, take a packed lunch instead; this in itself could save over £100 each month. Reduce the number of times you go out, too; consider not even bringing a credit card to work! Check your credit rating every six months or so to ensure there are no errors on your credit report, as this can hurt applications to credit cards in future.

Finally, reconsider the mobile phone companies, utility suppliers, banks, and broadband providers to get the best deal. Plenty of organisations will be able to assist you on this, such as price comparison websites. After all of this? Call a proper service for debt management and consolidation advice – you won’t regret it!

The Right (Legal) Way to Lend Money to Loved Ones

You can ask all the big time personal finance gurus out there – from Dave Ramsey to Suze Orman – and they’ll all tell you the same thing: lending money to family is a bad idea. It invites a plague of ethical dilemmas and amateur mistakes that statistically often stack against the lender. But what are you going to do? It’s nearly impossible to refuse to help loved ones when they need it – that’s the point of love isn’t it? With that said, lending money by taking out personal loans, without proper consideration for the law and insuring yourself against all possible outcomes, is a bad idea. In today’s tough economic times it’s hard to say no to family members and friends who might need help, so if you say yes, consider the following:

Taxes

You might be mostly concerned about getting your money back in full from the borrower but you need to be mindful about making sure that the IRS doesn’t classify your loan as a gift if the amount exceeds $12,000. That’s the limit on non-taxable gift giving to one person and lenders must pay taxes on gifts in excess of that amount. The proper documentation of your loan agreement is as much about proving to the government you loaned the money as it is about ensuring proper repayment agreement.

The Paperwork

In order to protect yourself from owing unnecessary taxes, you have to make sure you create a proper loan agreement. This means determining the interest rate, loan amount, payment period, interest, and collateral if applicable, and putting it to paper. Once both parties have signed, it can be considered valid proof of a loan in the eyes of the IRS. But you have to make sure you follow federal guidelines for interest on loans between related parties. These rates are determined based on the payback period, and can be found by visiting the IRS’s website for rates rulings.

The Paperwork Part II

Make sure you list the income, if any, earned from your loan on your Form 1040 Schedule B. That way you avoid accidentally committing tax evasion on unlisted income. They take loans between related parties as serious as they take loans between anyone else. It’s important to remember that when it comes to the IRS they simply don’t have a sense of humor about anything.

Lend money to family members at your own risk. But even if it’s shady Uncle Harry you lend your hard earned money to, it’ll be Uncle Sam who will be coming to collect his due if you don’t take the necessary precautions. Being good family isn’t always easy, but preventing the government from getting its hands in on the deal is if you know the right things to do.

Guest post by Jess