A:

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.

RELATED FAQS
  1. Does a free credit report show your credit score?

    Find out how you can obtain your credit score, and find out whether your score is included in your free annual credit reports. Read Answer >>
  2. How does the number of credit card accounts I have affect my credit score?

    Your credit score, which is also referred to as your FICO score, is a measure that creditors use to assess your potential ... Read Answer >>
  3. How is my credit score calculated?

    The credit score, commonly referred to as a FICO score, is a proprietary tool created by the Fair Isaac Corporation. This ... Read Answer >>
Related Articles
  1. Personal Finance

    What Do Credit Score Ranges Mean?

    Take a closer look at what credit scores in each range mean for your financial future.
  2. Managing Wealth

    Can You Hit A Perfect Credit Score?

    Everyone wants a great credit score, but few know exactly how to achieve perfection. Find out how your credit score is kept and what it takes to reach a perfect 850 rating.
  3. Personal Finance

    Why The Credit Score You Buy Differs From The Lender Score

    It takes many people by surprise when they purchase credit scores and find the lender's credit score disclosure does not match.
  4. Personal Finance

    Is It Worth Paying To Check Your Credit Score?

    Generally, a free credit report is all you need. If you've had some credit issues, it may be worth buying your credit score to get a finer level of detail.
  5. Personal Finance

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  6. Personal Finance

    Top Places To Get A Free Credit Score Or Report

    When's the last time you checked your credit report? With all the hacking out there, don't wait for the car dealer to find problems when you need a loan.
  7. Personal Finance

    How Bad Is My Credit Score?

    You've seen the number, but what does it mean? Here's how to assess your credit score and get to a better place if needed.
  8. Personal Finance

    Credit Score vs. Credit Report: Which Is Better?

    They sound alike, but can serve very different ends.
  9. Personal Finance

    How Your Credit Score Compares to the Average American's

    While only a small percentage of Americans have terrible credit scores, a whopping 30% have poor or bad credit, according to the Consumer Financial Protection Bureau.
  10. Managing Wealth

    Can You Hit The Highest Credit Score?

    Yes – getting the maximum credit score is doable. But the real question is, does it matter?
RELATED TERMS
  1. FICO Score

    A type of credit score that makes up a substantial portion of ...
  2. Credit Scoring

    A statistical analysis performed by lenders and financial institutions ...
  3. Bad Credit

    A qualification of an individual's credit history that indicates ...
  4. FAKO Score

    A derogatory term for a credit score that is not one of the FICO ...
  5. Business Credit Score

    A number indicating whether a company is a good candidate to ...
  6. Credit Utilization Ratio

    An input used in determining a person's credit score. It is the ...
Hot Definitions
  1. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  2. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  5. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  6. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
Trading Center