Credit Rating VS. Credit Score: What’s the Difference?

Credit rating vs. credit score: what’s the difference? Although Credit Rating Vs Score sound almost interchangeable, they offer different insights into how your credit has been handled in the past.

Credit Rating Vs Credit Score

Credit Ratings

Credit ratings are created by agencies that set their own scales. However, most popularly used are those produced by Standard &Poor’s. This rating uses triple-A ratings for corporations or governments that have the strongest capacity in meeting financial commitments, followed by double-A, A, triple-B, double-B, B, triple-C, double-C, C, and D for default. Also, pluses and minuses may be added to distinguish differences between ratings from “AA” to “CCC”.

In calculating these ratings, S&P examines a business’s or government’s history of borrowing and repaying loans pattern. Fitch and Moody’s are also two other companies that also create credit ratings. These three organizations are in charge of assigning outlook ratings (negative, positive, stable, under review, and default) to countries. This indicates the potential trend in a country’s rating over the next six months upwards to two years.

Credit Score

A credit score is a number that lenders use in evaluating how much of a risk a consumer poses. The credit score that is most commonly used in making credit decisions is the FICO score. The FICO comes in multiple versions, many of them specialty scores for products like auto loans or credit cards.

Your scores will fluctuate based on your account activity. VantageScore and most versions of FICO range from 300 – 850. Scores that rank at 690 or above are considered “Good” while scores at 720 or above are considered as “Excellent”. The same factors are observed by the two scoring models, thus if you have a good score on one, you’ll likely have a good score on the other.

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While applying for a credit card or a loan, the lender checks your credit score to help determine your eligibility. Thus it’s best to monitor your score yourself so you’ll stay updated on how a lender may gauge you. Also, this can be useful if you are looking to build your credit.

Is a Credit Rating the Same as a Credit Score?

Yes. These two terms are used interchangeably in Australia and mean the same numerical score used by lenders.

What Credit Score is Ideal?

The higher your credit score, the better. This is because your credit score affects your access to better loans and credit card deals. The following are the ranges of credit scores:

  • Excellent: 841 – 1,200
  • Very Good: 756 – 840
  • Good: 666 – 755
  • Average: 506 – 665
  • Below Average: 0 –505

What Affects Your Credit Rating?

Good for your credit rating

  • On-time bill payment
  • When you avoid applying for new credit cards or loans.
  • Paying off outstanding loans and credit card debt
  • Making monthly on-time repayments each month
  • Having a consistently low balance on your credit card
  • Having an available credit limit that is much higher than your usual credit balance
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Bad for your credit rating

  • Applying for more credit cards or loans
  • Applying and getting rejected for a credit card or loan
  • Making late payments on your credit card or loan
  • Payments or bills for at least $150 that are overdue by 60 days or more
  • Getting multiple balance transfer credit cards repeatedly
  • Getting a balance transfer credit card but failing to repay the balance transfer at the end of the promotional interest rate period

How to Prevent a Negative Credit Rating

Avoid applying too often: Applying for new cards over a longer period of time has less impact on your credit file. Thus when applying for credit cards, try to spread your applications over six months or one year periods.

Review terms and conditions:Review the balance transfer offer terms and conditions at the beginning. You’ll have to confirm whether you meet all of the eligibility requirements to make sure your application is not rejected.

Make on-time payments: Do your best to repay your balance on time. This is because making a late payment can result in the termination of the promotional balance transfer offer and impact negatively on your score.

Avoid new purchases: Avoid as much as you can to make purchases during the balance transfer period. This could increase your debt. Your repayment automatically go towards whichever debt accrues a higher interest.

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