People always get confused about credit rating and credit scores. Sometimes the two terms can be used interchangeably. Yet in most cases, there is a distinction between the two.
Credit rating refers to a detailed financial analysis according to your credit history, present financial position, and the possible future income. Credit rating can be used to determine your timely repayment ability. It can also be used to decide whether a company can meet the debt obligations or not. A credit rating is usually based on the quality and quantity of the information, judgments, and the experiences of the credit agencies. The highest credit rating is AAA, and the lowest rating is D (default).
Credit scores are usually numbers appearing on the consumer credit reports. The scores stand for the statistical summary of financial related information about an individual or a company. Credit scores can also be called credit risk scores. Lenders can use the number to assess the credit worthiness of an individual or a business. Generally speaking, the higher the number is, the more credit worthiness you will have.
Although both the credit rating and the credit score can be used to assess the credit worthiness, the differences still exist.
Differences between credit ratings and credit scores
• Credit rating is expressed with alphabets, whereas credit score is expressed with numbers.
• Credit rating does not involve mathematical expressions. Credit score, on the other hand, is generated from a complicated mathematical system.
• Credit rating is mostly based on judgment and experience, while credit score is usually on the basis of mathematical analysis.
• Credit rating presents the capacity of future paycheck. It is mainly based on the past, present, and certain predictable future data. Credit score, however, is usually derived from historical data, which shows the past behavior of the repayment.