
How to build back your credit after a divorce
Here’s what to look for, how to repair damage and start building credit in your own name.
Credit risk is a money term you need to understand. Bankrate explains.
Credit risk is a measure of the creditworthiness of a borrower. In calculating credit risk, lenders are gauging the likelihood they will recover all of their principal and interest when making a loan. Borrowers considered to be a low credit risk are charged lower interest rates. Lenders, investors, and other counterparties consult ratings agencies to asses the credit risk of doing business with companies.
When determining the credit risk involved in making loans, lenders are judging borrowers’ ability to pay back debt. A range of factors go into assessments of credit risk, including credit history and credit score, debt-to-income ratio, and collateral.
For companies, credit risk represents the risk that a company may not be able to make payments on its outstanding debt. Ratings agencies — Moody’s and Standard & Poor’s, for example — analyze bond offerings and issue credit ratings that grade the credit risk of different debt instruments.
It’s possible to give your creditworthiness a facelift by reviewing your credit report for any mistakes, paying down credit card debt, making all payments on time and cutting expenses wherever possible.
Check out Bankrate’s debt-to-income ratio calculator to see how much credit you can afford.
Ignoring credit risks was the major animating factor behind the financial crisis of 2007-2008. In the years leading up to the crisis, banks and other lenders lent vast sums in the form of subprime mortgages to high-risk borrowers. As the economy slowed in 2006-2007, many of these risky borrowers couldn’t repay their loans, and the turbulence from this systemic failure to properly account for credit risk nearly wrecked the global financial system in late 2008. Major banks suffered losses because the models they used incorrectly assessed the likelihood of default on mortgage payments.
Here’s what to look for, how to repair damage and start building credit in your own name.
Earning and maintaining healthy credit can help you qualify for loans and competitive interest rates.
Your credit score has a huge impact on your financial life. The good news is that building credit isn’t hard. Here’s how to start improving your credit today.
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