2025 Credit Rating vs. Credit Score Explained: Key Differences & Costs

Credit ratings typically apply to corporations and governments, while credit scores are primarily for individuals.

Understanding Credit Rating vs. Credit Score in 2024

Credit scores are numerical values that indicate an individual's creditworthiness, helping lenders assess the risk of lending. Conversely, credit ratings are letter grades assigned to companies or governments to evaluate their financial stability and ability to repay debt. This article delves into how credit scores and ratings are calculated, their uses, and what sets them apart.

Key Highlights

• Credit ratings use letter grades to evaluate businesses and governments.
• Credit scores are three-digit numbers assessing individuals and small businesses.
• Credit scores are based on data from Experian, TransUnion, and Equifax.
• FICO scores range between 300 and 850.
• Credit ratings are issued by agencies like S&P Global, Moody’s, and Fitch.

What Is a Credit Rating?

Credit rating agencies, such as S&P Global, assign letter grades from AAA (highest) to D (default) to assess the credit risk of corporations and governments. Variations like pluses and minuses further refine these ratings. Agencies evaluate financial history, cash flow, debt levels, and repayment reliability to determine these ratings.

Pro Tip

Improve your credit score by paying bills promptly, exceeding minimum payments, and lowering overall debt.

Additionally, agencies consider future economic outlooks and assign outlook ratings like “positive,” “stable,” or “negative” to indicate potential rating changes over time.

What Is a Credit Score?

A credit score is a three-digit number, most commonly the FICO score, representing an individual's creditworthiness. Factors influencing the score include payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries.

Important Note

While FICO scores vary slightly across bureaus, VantageScore offers a consistent scoring model. However, most lenders prefer FICO scores when evaluating loan applications.

FICO scores range from 300 (poor) to 850 (excellent), with higher scores improving loan approval chances and securing better interest rates.

Major Differences Between Credit Ratings and Credit Scores

Credit ratings use letter grades for evaluating entities like governments and corporations, while credit scores are numerical and focused on individuals and small businesses. Credit ratings come from agencies such as S&P, Moody’s, and Fitch, whereas credit scores are primarily generated by FICO based on data from Experian, TransUnion, and Equifax.

Personal loan and mortgage approvals depend on your credit score, whereas investors rely on credit ratings when assessing sovereign or corporate debt risk.

How to Boost Your Credit Score in 2024

Regularly review your credit reports for errors, pay bills on time, reduce outstanding debts, and maintain a balanced mix of credit types to enhance your credit score.

Does Checking Your Credit Report Affect Your Score?

Checking your credit report yourself results in a soft inquiry, which does not impact your credit score. You can obtain one free credit report annually from each major bureau at AnnualCreditReport.com.

Impact of Opening New Credit on Your Score

Applying for new credit triggers a hard inquiry that may slightly lower your credit score temporarily. Responsible use of new credit, however, can improve your score over time.

Final Thoughts

In 2024, credit scores below 580 are considered risky, while scores above 580 range from fair to excellent. On the S&P scale, ratings below BBB are non-investment grade, indicating higher risk, while BBB and above are considered investment grade, reflecting stronger financial stability.

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