How Credit Rating Agencies See You Based On US Credit Rating Scale

Many people don’t realize that their consumer credit rating is so much more than just a number. It is the key to financial opportunities they might otherwise miss. Your credit rating tells lenders, employers, landlords, and insurance companies so much about you and your ability to manage finances. Understanding the elements that contribute to your credit rating will help you make the best financial decisions to ensure the highest credit scores.

While the term, ”credit rating“ in the United States has traditionally referred to the credit standing of a business or corporation, in recent years more and more people use it interchangeably with the consumer, ”credit score“.

Credit Scores vs. Credit Ratings

When a person speaks of a US credit rating they may still be referring to the grade assigned to a company by a rating service such as, Standard & Poor’s or Moody’s. Governments, investors, and broker-dealers rely on non-consumer credit ratings to hedge investment risk or set capital requirements. These ratings range from ”AAA“, the best credit rating, to ”D“ depending on which rating service assigns the grade.

When most people refer to a personal or consumer ”credit rating“ they usually mean, ”credit score“. Lenders, employers, landlords, mobile telephone providers and insurance companies all use scores to gauge risk. Credit scores indicate the credit worthiness of individuals seeking loans, credit cards, employment and insurance. The standardized scoring system allows companies to predict which consumers will most likely ”stand up to“ the terms of agreement set forth by the lender.

Employers and insurance companies use consumer scores in a slightly different way. While there is no financial agreement between the company and the consumer in these cases, companies use credit scores more as an indicator of human behavior. Employers looking to hire a new employee often pull a credit report on an applicant as a way of gaining additional information on the person.

Many companies look for strong, financially solvent candidates who maintain their financial accounts responsibly. They may also find inconsistencies in employment history that an applicant has reported. Although not all creditors furnish employment history as part of the data they provide credit-reporting agencies, some do include this information for a consumer profile.

Credit Rating Agencies

Credit rating agencies also referred to as, ”credit bureaus“ purchase personal information on consumers and assign credit scores based on credit history and usage. They in turn, sell this information to users who utilize it to make lending or employment decisions. The three major credit-reporting agencies that service consumer accounts in the U.S. are Equifax, Experian, and TransUnion, http://www.fdic.gov/consumers/consumer/ccc/reporting.html. Together the agencies handle more than 200 million consumer profiles throughout the nation.

Credit Score Ratings

Each of the three major credit-reporting agencies gather information provided by lenders, landlords, U.S. courts of law, and some utility companies. Through a formula created by the Fair Isaac Corporation, FICO they assign a credit score for each consumer profile. While other credit scoring models do exist, FICO is the standard scoring method most commonly used within the lending industry.

Credit Rating Scale

The FICO scoring scale ranges in number from 300 to 850. While the specific formula is proprietary and only known to the Fair Isaac Corporation, the company bases its scoring on five individual elements of credit.

These include:
Payment history -35%
Total debt-30%
Length of credit history-15%
New credit-10%
Type of credit-10%

Credit scores are grouped into ranges that help lenders assign interest rates and limits based on risk. While specific lenders may create their own ranges, most are within a few points of the following credit score-rating chart:

Very Bad Credit Score – 500 to 559
Poor Credit Score – 560 to 619
Fair Credit Score – 620 to 659
Good Credit Score – 660 to 699
Very Good Credit Score – 700 to 759
Excellent Credit Score – 760 to 850

Get My Free Credit Report

It’s easy to check credit score ratings online. Simply click on the link provided and fill in the required personal identifying information. When you get your credit scores from each of the major credit bureaus, be sure to review your reports for accuracy and up-to-date information. Once you know where you stand with creditors, you can seek the best interest rates for credit cards and loan terms based on your individual scores. If you need help repairing damaged credit or need to improve credit rating scores, an advisor can help with that too.

While numbers represent many things in life, your credit rating is one of the most important. Credit scores let others know you are financially responsible and worthy of their trust. Maintaining good credit is an ongoing process that requires support from a company that understands consumers. While BestCredit.net knows that not everyone has perfect credit, we work to help you find the best borrowing opportunities available as you continue to build positive creditor relationships.

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