The ratings that lenders give you on your credit report determines if you a good risk as a borrower. Being a good risk means that you have a good credit report that shows you make your payments on time and that you make every effort to repay money that you have borrowed. If you have a revolving charge account at a department store, this is also considered borrowing because you have to pay for the items you purchased on credit.

Your credit report is an assessment of your ability to handle financial debt. The rating you receive changes as new debts are added or old ones are paid off. The overall rating determines the amount of credit you are eligible to receive at a given time. This is why ii is important to establish and maintain a good credit history. If you have a good credit rating, you can get loans approved over the telephone or Internet.

Each time you apply for credit through a bank or other lending institution, you are establishing credit history for yourself. The financial institution to which you apply uses three methods to determine whether or not they will approve your application:

	• If you have dealt with this lender in the past, they will review your past credit history with them.
	• They will consider new information which you provide in your credit application
	• They will contact one of the three reporting agencies for your credit report detailing your dealings with other lenders.

A strong credit report enhances your chances of getting approval for the loan application, whereas overdue or missed payments will hinder the process.

You must be able to demonstrate that you can make the payments on the loan. This depends on your income and current debt. Financial institutions use a mathematical formula to determine you ability to make the payments, and if these calculations show that you may have problems meeting the obligations, your application will most likely be denied.

You can get both secured and unsecured loans at a lending institution. Unsecured loans are completely dependent upon the information in your credit report. This is because the lender does not have anything to fall back on should you default on the loan. With secured loans, you supply collateral to the lender. This collateral is usually in the form of property, such as a home or a vehicle, which the lender can repossess and sell to recoup the money you borrowed. These loans are usually easier to get because the lender sees that you have a personal stake in the loan.