The letters or numbers used to express a credit rating or credit score express the creditworthiness of the individual, business, or government being assessed. Credit ratings are usually expressed in letters such as "AAA" or "BB." Credit scores, which are normally assigned to individuals, are expressed as numbers ranging from 850 to 300.
Credit rating agencies assign ratings that express whether or not an entity is likely to be able to meet its debt obligations. There are three agencies that create the majority of the world's credit ratings: Fitch Ratings, Moody's Investors Service and Standard & Poor's.
Since the beginning of the 20th century, these three credit rating agencies have been producing ratings and investment analysis, but Fitch was the first to use the now common letter rating system. A typical credit rating scale uses the following letter ratings: AAA, AA, A, BBB, BB, B, CCC, CC, C, and D.
Pluses and minuses are added to letters AA through C to further distinguish ratings, and ratings are often also accompanied by outlook ratings. Symbolized by "NEG," "POS," "STA," "RUR" and "SD," these abbreviations stand for negative, positive, stable, rating under review and selective default, respectively.
These ratings are used by individual and institutional investors, who are trying to decide if they want to buy securities or investments backed by any country. Only triple-A credit ratings are considered to be top-notch. Ratings of BB or lower are considered to be "junk" ratings, while ratings between these two categories are OK but are under observation by the credit rating agencies.
Consumer credit scores are expressed in numbers rather than letters, and although scores are generated by each of the three major credit reporting agencies (Experian, Transunion, and Equifax), the most commonly used consumer credit score is the one created by Fair Isaac Corporation (FICO).
FICO scores range from 300 to 850. FICO scores above 800 are considered to be exceptional. Credit scores ranging from 740 to 799 are very good or above average, while scores ranging from 670 to 739 are good. Scores between 580 and 669 are considered below average or not good, while those lower than 580 are considered risky or bad. When a borrower's credit score expresses that they are risky, it simply means they have a higher likelihood of defaulting on the loan than a borrower with an excellent credit score.
Having a low credit score or a score that is considered to be risky does not necessarily mean that a lender will refuse to lend to you. However, the lender will be aware of the potential financial risk and may compensate by charging higher interest, having shorter terms or requiring a cosigner.
FAQs
Credit scores are assigned to individuals based on their personal history of acquiring and repaying debt. They are checked by lenders considering loaning money to a consumer. Credit ratings are issued to companies and governments by several companies including S&P Global,Moody's, and Fitch Ratings.
What is the credit rating of individuals? ›
CIBIL scores can range anywhere between 300 and 900, with 900 denoting maximum creditworthiness. A CIBIL score of 750 or above in your credit report is ideal. It will aid in qualifying you for personal loans and credit cards.
What is the government's credit rating? ›
Moody's still assigns the U.S. its highest AAA credit rating, though it's the only one of the three main rating agencies to do so. In August, Fitch Rating downgraded the government's long-term credit rating from AAA to AA+. Standard & Poor's lowered its score to AA+ back in 2011, after an earlier debt-ceiling crisis.
How are companies credit rated? ›
Financial risk profile. Credit rating agencies examine a company's financial statements and calculate financial ratios to assess its financial position and ability to repay creditors in the long term. Supplementary risks. These risks can include the company's financial policies, governance and structure.
How is a person's credit rated? ›
Factors used to calculate your credit score include repayment history, types of loans, length of credit history, debt utilization, and whether you've applied for new accounts. A credit score plays a key role in a lender's decision to offer credit and for what terms.
How is a person's credit rating determined? ›
A FICO credit score is calculated based on five factors: your payment history, amount owed, new credit, length of credit history, and credit mix. Your record of on-time payments and amount of credit you've used are the two top factors. Applying for new credit can temporarily lower your score.
What is the credit rating scale individual? ›
Credit ratings are usually expressed in letters such as "AAA" or "BB." Credit scores, which are normally assigned to individuals, are expressed as numbers ranging from 850 to 300. Credit rating agencies assign ratings that express whether or not an entity is likely to be able to meet its debt obligations.
What is the US individual credit rating? ›
The FICO Mortgage Score and FICO Score XD 2 are between 300 and 850. Higher scores indicate lower credit risk. Experian classifies FICO credit scores lower than 580 as very poor, 580–669 as fair, 670–739 as good, 740–799 as very good, and 800–850 as exceptional.
Do individuals have credit ratings? ›
Credit scores are assigned to each person over the age of 18 and some small businesses. The scores typically consist of three-digit numbers. They're used by lenders to determine an individual's creditworthiness, or how confident a lender is that you can pay your debt back.
What credit score does the US government have? ›
On August 1, 2023, Fitch Ratings, one of the country's three major credit rating agencies, announced that it had downgraded the US credit rating from AAA to AA+.
Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.
What is the US government credit index? ›
Bloomberg U.S. 1-3 Year Government/Credit Bond Index – ETF Tracker. This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.
What is the credit score of a company? ›
It is a three-digit number which gives the bank or the lender a sense of your organization's creditworthiness i.e. your organization's dues have been repaid regularly or not. If the credit score is good then the lender understands that your organization has had an overall good credit history.
What are the 3 main credit score companies? ›
Equifax, Experian and TransUnion are the three nationwide credit bureaus. According to the Consumer Financial Protection Bureau (CFPB), credit bureaus are companies that compile and sell credit reports.
Does a company have its own credit rating? ›
Your business credit score is similar to your personal credit score and is a value based on how you deal with your finances. The key difference is that a business credit score is based on how your business deals with its finances instead of your personal transactions.
What are the 5 levels of credit scores? ›
FICO score ranges
- Below 580: poor.
- 580 to 669: fair.
- 670 to 739: good.
- 740 to 799: very good.
- 800 and above: exceptional.
Credit scores are assigned to each person over the age of 18 and some small businesses. The scores typically consist of three-digit numbers. They're used by lenders to determine an individual's creditworthiness, or how confident a lender is that you can pay your debt back.
How rare is a 700 credit score? ›
Credit score distribution: How rare is an exceptional 800 to 850 score?
| FICO® Score range | Percent within range |
|---|
| 650-699 | 12% |
| 700-749 | 17% |
| 750-799 | 24% |
| 800-850 | 23% |
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