Rating Credit: Individuals, Companies, and Governments – Credit & Debt
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 letter rating system. Now, all three agencies rate entities with 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 760 are considered to be excellent. Credit scores ranging from 725 to 759 are very good or above average, while scores ranging from 660 to 724 are good. Scores between 560 and 659 are considered below average or not good, while those lower than 560 are considered risky or bad. When a borrower's credit score expresses that he or she is risky, it simply means he or she has 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.