When you want to take out a short-term loan, such as a payday installment loan, you will have a credit report on file with a credit bureau but it will not affect your ability to borrow money. However, all lenders are required by the federal Fair Credit Reporting Act (FCRA) that U.S. consumers of payday installment loans and other similar loans be entitled to a free credit report each year. This is to ensure that consumers stay informed, can fight identity theft, and will get fair treatment.
The Credit bureau stores and maintains all information regarding your borrowing and repayment habits that are reported on a systemized credit report. The credit report will also include your personal identification, your credit history, and public records that directly affect your credit rating. The purpose of a credit report is to develop a standard to report credit ratings. Also, credit reports are important because they serve as the source for your credit rating and score.
Definition of credit rating
A credit rating measures your consistency of repaying your loans, such as a payday installment loan, and other debts. If you neglect to make timely payments on your bills or a loan, you will be reported to a credit bureau. In simple words, a credit rating gives a glimpse of your credit worthiness.
Definition of a credit score
A credit score is a figure that determines your credit risk and can affect the approval of a loan application. This is usually established by credit-reporting agencies, such as the Equifax and TransUnion, using a scale from 300 to 900. The higher your credit score, the lower the risk for the lender. Furthermore, there is also a so-called “R” rating in your credit score that shows your payment history. This rating ranges from 1 through 9, with an R1 rating as the best and an R9 is the worst.
Certain Factors can influence your credit score that includes:
- Payment history
- The amount you owe
- Credit use
- Credit experience
- Acquisition of new credit
- Types of credit established