What criteria do credit companies use to rate credit worthiness?

Knowing your credit score is important, as it is what determines if you can get loans, and the much needed funding to run your business. Your credit worthiness is what determines your score. So, if your score needs improving, or you want to have an idea of how credit worth you are, you need to know what criteria credit companies use to rate credit worthiness.

What criteria do credit companies use to rate credit worthiness?
The answer to this question is simply that there are a number items, or in other words, financial information, that is used to rate credit worthiness. And it will vary from credit company to credit company, however, there are a few that each company uses. The following are a few of the most widely used types of information used to rate credit worthiness:

1. Late payments: The number of late payments is going to affect your credit worthiness. Obviously the fewer late payments you have the more credit worthy you are considered. So, to improve your credit worthiness, pay on time.
2. Delinquencies: when a credit company looks at your credit history, or credit report, one thing they always look for are number of delinquencies. This means the number of accounts that you are not making payments on, but should be. When you miss a payment, the credit account becomes delinquent. When a credit company issues you credit, they do so under the assumption you will pay them back. If your history shows that you do not pay people back very well, then your rating for credit worthiness will not be very high.
3. Bankruptcies: While this may seem like an obvious one, it is important to note. If you have had a bankruptcy in the past 7 years it will greatly effect your credit worthiness, and no matter how good you have been since, credit companies will always use a bankruptcy to rate your credit worthiness.
4. Outstanding debt: How credit worthy you are is determined often by how much you owe, and this is often compared to how much you bring in. If for example, you make $4000 a month, but you have outstanding debts that payments equal $3500, you are not likely going to be approved for a loan, as your debt to income does not make sense, and even with perfect credit, you can't pay something if you do not make enough money to do so.
5. Length of credit history: the longer you have a positive history the better your rating. It is hard to judge someone's credit worthiness if they have only ever had one credit card and it has only been open a few months. The longer you have positive accounts, the better it is for your credit rating.
6. New applications for credit: Each time you apply for credit an inquiry is made on your credit history. If a credit company sees that you are constantly applying for new lines of credit, then they are less likely to extend you one. Having new and old lines of credit is positive, as new applications for credit show a continued ability to payback lenders, but be careful not to have too many.
7. Types of credit in use: There are all sorts of credit, equity lines, home loans, credit cards, car loans, title loans, etc. Credit companies will look at what types of credit you have been extended in the past, and how well you paid them off. This is one way they rate your credit worthiness, as it is much harder to get a home loan than it is to get an Old Navy Card.

In general, with all of the above criteria, credit companies look at three factors: severity, timing, and frequency. Each of these factors is going to determine how high or low your rating of credit worthiness is. For example, a report of a 30-day late payment is not as serious as a 90-day late payment. Just as one late payment is much less severe than ten. And, a late payment from four or five years ago does not effect your score as one from a month or two ago. So, now you know. Knowledge is power, so use this knowledge of how credit companies rate your credit worthiness to improve your credit score. Pay on time, keep credit lines open to establish history, keep your debt in check, and use credit for bigger purchases.