What Is a Credit Rating Scale?

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Creditors and lenders tend to focus on the FICO credit score, but there are hundreds of types of credit scores used by lenders to determine creditworthiness, according to Experian. Each of these scores has its own rating scale. While the presence of different score ranges might confuse some consumers, credit rating scales tend to work in the same fashion. They help lenders to quantify the risk of an applicant.

Function

  • A credit rating scale rates how likely it is that a person will default on their loan. On the FICO credit rating scale, for example, anybody with a score of 780 and above has almost zero chance of defaulting on a loan. Someone with a score of 660 has a 1 in 72 chance of default on a loan.

Common Rating Scales

  • By far, the most common rating scale was developed by the Fair Isaac Corporation. The FICO model ranges from 300 to 850, which both extremes being difficult to reach. Another scale you might encounter is the VantageScore—an alternative to FICO developed by the major credit bureaus. The VantageScore ranges from 500 to 990.

What is in a Rating Scale?

  • Credit rating scales factor in information that is pertinent to a borrower's financial profile. The FICO model includes payment history, length of credit history, amount of credit used and negative items, like missed payments or public judgments. Not included are most utilities and rent payments. Alternative scores may use information not entirely related to loan repayment, such as banking records and cell phone bills. Some scales cater to niche markets, like mortgages, so they give more weight to items important to that specialty.

Considerations

  • Although lenders generally use the same credit rating scale, they may interpret scores differently. Lenders who are most risk adverse might only give approval at the best rates to those at the highest end of the scale, while looser lenders extend their range, but may charge more in interest. As long as you pay bills on time and keep debt to a minimum, you should place high on any scale.

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