What is a Credit Rating and How is it Established?
A credit rating is simply someone’s assessment of how well you would be able to pay back money lent to you. Usually, that “someone” is a credit reporting agency; however, creditors themselves will also make their own assessment, which is usually based on the score you receive from the credit reporting agencies and is determined by requirements that vary a great deal from one creditor to the next.
Credit can be established in a number of ways. Perhaps the most common is the opening of a credit card account. In some cases, a secured card (a card that requires you to pay money into an account the creditor controls before you receive a card) may be the way to establish credit initially. You can also use low balance store cards or gas cards that let you prove that you can pay your monthly payments back, before qualifying for a larger balance credit card.
Again, credit is just one person’s or one entity’s estimation of your ability to repay what you borrow. Once you’ve established one or more trade lines on your credit, your score will be more directly related to the percentage of credit you carry as compared to the total amount you could carry and your payment history on the trade lines you have. A trade line is any credit account where you have borrowed money and are paying it back such as a credit card, home loan, or signature loan. All your open trade lines and some of your closed ones will show up on your credit report.
As mentioned above, the amount of debt you are currently carrying when compared to your max debt is one factor that figures into your credit rating. If your max debt, or credit limit, is $10,000 and you are carrying $8,620, you’re currently carrying over 80% of your max debt, which is more than the credit reporting agencies like to see.
Payment history is another factor the agencies use to determine your score. Your payment history is the trend you set when it comes to paying off your debt, either an on-time minimum payment every month or a less-than-minimum payment, late payment, or other problem even one time. If your payment history isn’t spotless, it can cost you points on your credit score, and may cost you money the next time you try to get a loan.
The length of time your trade lines have been open will also affect how your score is established. Closing old trade lines in favor of new ones won’t help your score, since your payment history on the new trade lines won’t be as long as it was on the old, giving the credit reporting agencies less on which to base your credit score.
Credit and your credit score have everything to do with your usage, management, and payment habits pertaining to the trade lines on your credit report. Be wise in the handling of these trade lines and your score will rise. Make poor decisions and your credit will suffer. Your credit rating is important when it comes to financing cars and homes, shopping for insurance â even when interviewing for some jobs. You’ll want to present the most responsible picture, and that means having excellent, well-established credit that speaks for itself.
For more articles on credit rating and how is it established, visit http://www.bills.com/establish-credit-rating-article/
justin narin
http://www.articlesbase.com/credit-articles/what-is-a-credit-rating-and-how-is-it-established-700771.html
Is it better to buy a shelf corporation that has an established credit rating?
Say if you're looking to Joint Venture with a company who manufacturer's a product, is it better to form your own incorporation and start from scratch? Or would it be wiser to purchase a shelf corporation that has a credit rating already? What I am trying to get at is, if you want to go into a joint venture that will costs millions of dollars to capitalize, but have VERY little money or assets to start it up, what is the wisest path to take in getting the company to consider your new company for the joint venture?
Your first investment should be in a good business attorney. Unfortunately many businesses have "hidden debts" that may not have been reported to a credit bureau. In most cases it is best to start from scratch. Most businesses for sale to the general public are in poor financial shape. If they where booming they would be acquired by large corporate institutions by multiple bidding offers.
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I respectfully disagree partially with the previous commentary. A good lawyer will protect you when you are entering into the JV, but they will likely have little added value when it comes to a review of the shelf company. Alot of the information(title searches, lien searches, SEC filings) for an adequate due diligence is going to be available to you and contingent liabilities will have to be disclosed. While this does not protect you against gross negligence or willful misconduct, it should give you some comfort. I also assume you are planning to either raise funds through the capital market or through some form of debt financing, both of which are made a little easier if you have a shelf corporation with a history.
Now if you are planning to enter into a JV with a sophisticated partner, it is unlikely they will accept a shelf company without some form of assurances that you will be able to meet your obligations to the partner. Talk to experienced professionals who will help you maneuver around to mitigate your exposures and help raise capital. The capital markets remain pretty liquid right now so your timing could be right.
So good luck and don't stray from your dreams.
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