Monday, March 13, 2006

The Impact of a Long-Term Debt on a Credit Rating

The Impact of a Long-Term Debt on a Credit Rating

Credit ratings can be affected by many factors. Having a long-term debt can raise or lower your credit rating. Knowing how credit scores and credit ratings are affected by debt can help you understand the impact of long-term debt.

Credit Rating

    A consumer's credit rating is often represented by their credit score. These scores are based on a consumer's past and current credit transactions, and various factors are used to determine what goes into the score.

Payment History

    Consumer payment history--whether they've been late or on-time with payments--compromise a large part of the credit score. A long-term debt with a good payment history will have a positive effect on a credit rating, while late payments will hurt.

Amount of Debt

    The amount of debt a consumer has can also affect their credit rating. Long-term debts with large amounts yet to be paid can hinder a score, while lower amounts can raise it.

Length of Credit

    Potential creditors want to know how long a consumer has been using credit. Long-term debts with a lengthy payment history can improve a score, while new debts with no prior history can have the opposite effect.

New Credit

    A newly-acquired long-term debt can have a negative effect on a score, especially if several such debts are incurred close together.

Types of Credit

    A long-term debt can improve a score if it shows the consumer is using multiple kinds of debts. If all the consumer has are long-term debts of the same kind, their score can be lowered.

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