Credit Rating vs. Credit Score
What is the difference between a credit rating and a credit score? In certain circumstances, the two names are used interchangeably, however there is a differentiation between them. A credit rating, given as a letter grade, reflects a company’s or government’s creditworthiness. Individual customers and small enterprises may both benefit from a numerical credit score, which is also a representation of creditworthiness.
Certain credit ratings are solely available to companies, such as the Dun & Bradstreet PAYDEX, Experian’s IntelliscorePlus, or the FICO Small Business Scoring Service. The PAYDEX scale is 0 to 100, while the Intelliscore Plus and FICO SBSS scales are 300-850 and 0 to 300, respectively. Individual credit scores vary from 300 to 850. 1
Your credit score as a consumer is a number that is based on information from your credit reports at the three main credit reporting bureaus—Equifax, Experian, and TransUnion. When applying for a personal loan, mortgage, or new credit card, your personal credit score will be important.
Both ratings and scores are intended to demonstrate a borrower’s probability of repaying a loan to prospective lenders and creditors. They are formed by other parties other than creditors or customers. Credit ratings are paid for by both the institution that requests them and the creditor. 2
- Credit ratings are utilized by corporations and governments and are represented as letter grades.
- Individuals and certain small companies utilize credit scores, which are numbers.
- Credit scores vary from 300 to 850 and are based on information from the three main credit reporting agencies.
- A FICO score is calculated by combining information from all three main credit bureaus.
- Credit rating firms such as S&P Global create credit ratings.
What Is a Credit Rating and How Is It Determined?
All credit rating organizations may create their own scales when generating a credit rating, however S&P Global produces the most widely used ratings. It assigns AAA ratings to firms or governments that have the greatest financial capability, followed by AA, A, BBB, BB, B, CCC, CC, C, and D for default. Pluses and minuses may be used to differentiate between scores ranging from AA to CCC. 3
S&P uses a company’s or government’s borrowing and repayment history to generate these ratings. Fitch Ratings and Moody’s are two more credit rating agencies. 45 The three agencies also award nations outlook evaluations of “negative,” “positive,” “stable,” and “developing.” These represent a country’s probable rating trend over the following six months to two years. 6
What Are Consumer Credit Scores?
Credit scores, as opposed to credit ratings, are frequently stated numerically. The FICO, or Fair Isaac Corporation, score is the most often utilized credit score in consumer lending decisions. FICO calculates an individual’s credit score using information from the three main credit reporting agencies. 1
VantageScores are credit scores generated by the three bureaus for individuals. 7 These will offer you a sense of where your credit stands and the variables influencing it, but most lenders, around 90%, look at a FICO score rather than these scores when analyzing a consumer’s creditworthiness. 8
A FICO score is calculated using credit indicators such as your payment history, the amount you owe, the length of time your credit accounts have been open (your credit history), new credit, and the mix of credit kinds. These scores vary from 300 to 850; the greater the score of a customer, the better the interest rate provided. 1
Credit scores are often classified as outstanding, very excellent, decent, fair, or extremely low. 1
Each lender has its own credit-granting requirements, but typically, scores over 740 are regarded very excellent or outstanding, while scores between 670 and 740 are considered good and indicate that the applicant is quite safe. Scores less than 670 but better than 579 are considered acceptable. Borrowers with credit scores in this category may have a few delinquencies on their records. Scores of less than 580 are regarded extremely bad. 1
The Bottom Line
Although measures differ, debtors ranking in the bottom third of the scale are considered dangerous under the most regularly used credit score systems. Borrowers with FICO scores ranging from 300 to 579, for example, are deemed dangerous, but those with scores ranging from 580 to 850 are deemed fair to exceptional.
Borrowers with ratings below BBB, in the lowest two-thirds of the S&P credit rating scale, are termed “non-investment grade,” while those with ratings between BBB and AAA are considered “investment grade.” 9
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