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Credit reporting agencies rate the ability of a person or company to pay back their financial obligations. The rating assigned by a credit reporting agency is important because it impacts the perceived risk that is factored into the interest rate that is applied to a loan. It also determines whether or not a lending institution will give a loan to an individual or company. Someone with a good credit rating can often obtain more favorable terms, as interest rates can vary depending on your credit rating. Lending institutions base their interest rates on risk based pricing dependant on the different expected costs of borrowers.
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