A credit rating is a number that describes your credit risk. It is based on information in your credit report at any given time. Credit ratings are calculated primarily by private companies called credit bureaus, or credit agencies. Credit ratings are also called credit scores.
Function
Lenders use your credit rating to help decide whether to loan you money. It also affects the interest rate offered to you.
Considerations
Credit ratings are calculated by using a complex mathematical formula that analyzes the information in your credit report. The formula most companies use to compute credit scores is called FICO, which refers to the Fair Isaac Corporation, the company that developed the credit rating formula and analysis system.
Features
FICO credit ratings range from 300 to 850; the higher the score, the better. According to MyFICO.com, lenders generally consider a rating above 750 excellent, around 700 good, close to 650 fair and below 600 poor (see Resources).
Factors That Affect Your Credit Rating
FICO considers five categories of information to compute your credit rating. The categories and how much each contributes to your total score are: payment history (35 percent), amount of debt you have (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit in use (10 percent).
Fun Fact
The average credit rating in the United States is 723, as stated on MyFICO.com (see Resources).
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