Credit Rating vs. Credit Score: What’s the Difference?

Credit Score vs Credit Score

what is a credit rating against one credit score? The two terms can be used interchangeably in some cases, but there is a distinction between them. A credit score, expressed in the form of an alphabetical note, reflects the solvency of a company or a government. A numerical credit score, also an expression of creditworthiness, can be used for individuals or small businesses.

Some credit ratings, for example, Dun & Bradstreet PAYDEX, Experian’s Intelliscore Plus, or the FICO Small Business Scoring Service apply to businesses only. The PAYDEX uses a scale of zero to 100, while the Intelliscore Plus and FICO SBSS use a scale of 300 to 850 and zero to 300, respectively. Personal credit scores range from 300 to 850.

As a consumer, your credit score is a number based on information from your credit reports at the three major credit bureaus – Equifax, Experian and TransUnion. When it comes to applying for a personal loan, mortgage, or new credit card, you’ll be interested in your personal credit score.

Ratings and scores are designed to show potential lenders and creditors the likelihood of a borrower repaying a debt. They are created by independent third parties rather than by creditors or consumers. Credit scores are paid by the requesting entity as well as the creditor.

Key points to remember

  • Credit ratings are expressed as letters and used for businesses and governments.
  • Credit scores are numbers used for individuals and some small businesses.
  • An individual’s credit score is based on information from the three major credit reporting agencies, and scores range from 300 to 850.
  • A FICO score takes information from the three major credit bureaus to create an individual’s credit score.
  • Credit ratings are produced by credit rating agencies, such as S&P Global.

What is a credit score and how is it determined?

When creating a credit rating, all agencies can set their own scalesbut the most commonly used rankings are produced by S&P Global. It uses AAA ratings for companies or governments that have the strongest ability to meet their financial commitments, followed by AA, A, BBB, BB, B, CCC, CC, C and D for default. Pluses and minuses can be added to distinguish the differences between grades from AA to CCC.

To calculate these ratings, S&P looks at a company’s or government’s borrowing and loan repayment history. fitch reviews and Moody’s are two other companies that create credit scores. The three organizations also assign outlook ratings—“negative,” “positive,” “stable,” and “developing”—to countries. These indicate the potential trend of a country’s rating over the next six months to two years.

What are consumer credit scores?

Unlike credit scores, credit scores are usually expressed in numbers. The most common credit score used in consumer loan decisions is the FICOWhere Just Isaac Corporation, score. FICO takes information from the three major credit bureaus and uses it to calculate an individual’s credit score.

The three bureaus also generate their own credit scores for individuals called VantageScores.These will give you a general idea of ​​your credit status and the factors that affect it, but most lenders, around 90%, look at a FICO score rather than these scores when assessing a loan’s creditworthiness. consumer.

Credit factors such as your payment history, how much you owe, how long your credit accounts have been open (your credit history), new credit, and combination of credit types go into a FICO score. These scores range from 300 to 850; the higher a consumer’s score, the better the interest rate offered.

Credit ratings are generally grouped into the following ranges: exceptional, very good, good, fair and very bad.

Each lender will have their own guidelines for extending credit, but generally scores above 740 are considered very good or exceptional, while scores between 670 and 740 are considered good and express that the borrower is relatively secure. . Scores below 670 but above 579 are acceptable. Borrowers with scores in this range may have few defaults in their credit history. Scores below 580 are considered very bad.

The essential

Although the scales can vary, the most commonly used scales for credit ratings consider borrowers rated in the lower third of the scale to be at risk. Borrowers with FICO scores of 300 to 579, for example, are considered risky, while those with scores ranging from 580 to 850 are considered fair to excellent.

On the S&P credit rating scale, borrowers rated below BBB, in the lower two-thirds of the scale, are considered non-investment grade, while those between BBB and AAA on the scale are considered “investment grade”.