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Although credit rating and credit score may be used interchangeably in some cases, there is a distinction between these two phrases. A credit rating, often expressed as a letter grade, conveys the creditworthiness of a business or government. A credit score is also an expression of creditworthiness, but it is expressed in numerical form and only used for individuals. Both ratings and scores are designed to show creditors a borrower's likelihood of repaying a debt.

Credit ratings and credit scores are created by independent third parties, rather than by creditors or consumers. These services are paid for by the entity requesting the credit score as well as by the creditor.

When creating a credit rating, all agencies can set their own scales, but the ratings most popularly used are produced by Standard and Poor's. It uses triple-A ratings for corporations or governments that have the strongest capacity for meeting financial commitments, followed by double-A, A, triple-B, double-B, B, triple-C, double-C, C and D for default. Pluses and minuses may be added to distinguish differences between ratings from "AA" to "CCC."

To calculate these ratings, S&P looks at the borrower's history of borrowing and repaying loans. Fitch and Moody's are two other companies that also create credit ratings. Along with S&P, these organizations assign countries outlook ratings of negative, positive, stable, under review and default.

In contrast to credit ratings, credit scores are usually expressed in numbers. The most commonly used credit score is the FICO or Fair Isaac Corporation score. FICO takes information from the three major credit reporting bureaus (Experian, Equifax and TransUnion) and uses it to calculate an individual's credit score. These three organizations also generate credit scores for individuals, but most lenders do not look at these scores when assessing the creditworthiness of a consumer.

Factors such as payment history, amounts owed, length of credit history, new credit and other types of credit are factored into a FICO score These scores range from 300 to 850; the higher a consumer's score, the better. Credit scores are typically grouped into ranges like excellent, good, fair and poor.

Scores over 720 are considered to be excellent, while scores between 690 and 720 are considered good and express that the borrower is relatively safe. Scores between 650 to 690 are fair; borrowers with scores in this range may have a few delinquencies in their credit histories. Scores below 650 are considered poor.

Although scales may vary, the most commonly used scales for both credit ratings and credit scores consider borrowers ranked on the bottom two-thirds of the scale to be risky. For examples, borrowers with FICO scores from 300 to 650 are considered risky, while only those with scores ranging from 650 to 850 are considered fair to excellent. Similarly, on the S&P credit ratings scale, borrowers with ratings under triple-B are considered "junk" while only those that fall between triple-B and triple-A on the scale are considered OK.

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