Credit rating

What is a credit rating?

A credit rating is a measurement of a person or business entity’s ability to repay a financial obligation based on income and past repayment histories. Usually expressed as a credit score, banks and lenders use a credit rating as one of the factors to determine whether to lend money. Individuals receive credit ratings from one of the three major credit reporting agencies in the U.S.: TransUnion, Experian and Equifax.

Deeper definition

Credit ratings can determine whether you qualify for financing. Your credit rating is a measurement of your past repayment history on debts including credit cards and personal loans, which gives lenders insight into the likelihood of you paying them back if they approve you for a loan.

If you maintain a high credit rating, the likelihood of banks and lenders approving you for financing are high. A poor credit rating may represent an inability to repay debt and limit your financing options.

Credit ratings and credit scores often work interchangeably. For example, most businesses receive credit ratings expressed as letter grades (such as triple-A, double-A or A) from agencies such as Standard & Poor’s, while you receive a rating expressed as a score, known as a FICO score.

The most common factors that affect your credit score are the length of your credit history, past repayment history and your credit utilization. The three credit reporting agencies take that information and build your credit profile, which will determine your overall credit rating and score.

Want to know the difference between a credit report and a credit score? Find out today.

Credit rating example

Your credit rating or score is never a static number, and it can change based on new information that financial institutions send to the reporting agencies. If you miss a payment or apply for a new line of credit, that information is forwarded to the credit reporting agencies. If you have a high credit rating, one missed payment can lower your credit score.

Do you want the best rates possible on your next loan? Learn more about FICO scores.