Difference Between Credit Rating and Credit Score

Introduction

Credit Rating and Credit score are the two most important concepts that prevail in today’s financial world. Though used interchangeably, they refer to more or less two different elements of a person’s financial status.These are crucial in determining how you would qualify for unsecured business loans, credit cards, and other related products. In this blog, we will go through the difference between credit score and credit rating. What are the implications and meanings? How do they help determine your financial future?

Meaning of Good Credit Rating 

One of the most important financial indicators for MSMEs is a credit rating. It indicates the company’s creditworthiness and has a big influence on how easily it may get loans and investments. 

An excellent credit rating means an entity is financially sound, thus a low risk in the failure to pay EMI. Often, the better one’s credit rating, the lower the rates charged on loans and bonds. Good credit ratings rarely exist for personal accounts since the rating has largely been granted to corporations and governments. Yet, it needs to be known for the sake of knowing how it can influence the financial strength of companies you’ll find yourself investing in or working for.

Meaning of Different Credit Scores 

This refers to the number that mirrors your creditworthiness. Calculating it entails information from the credit report, which gives credit utilization, history of payments, credit history length, various forms of credit, and recent inquiries.

Here’s a breakdown of different credit score ranges and their implications:

Excellent (750-900):

• Implications:
  • High likelihood of loan and credit card approvals.
  • Favorable interest rates and terms.
  • Easier access to financial products.
  • Potential for higher credit limits.

Very Good (700-749):

• Implications:
  • Good chances of loan and credit card approvals.
  • Competitive interest rates and terms.
  • Positive perception by lenders.

Good (650-699):

• Implications:
  • Reasonable chances of loan and credit card approvals.
  • May face slightly higher interest rates compared to higher scores.
  • Lenders may require additional documentation or collateral.

Fair (580-649):

• Implications:
  • Limited options for loans and credit cards.
  • Significantly higher interest rates.
  • Stricter approval criteria.
  • May need a co-signer or collateral.

Poor (300-579):

• Implications:
  • Very low chances of loan and credit card approvals.
  • Extremely high interest rates, if approved.
  • Significant limitations on financial options.

Difference between Credit Score & Credit Rating

To summarize the key differences between credit score and credit rating:

Conclusion

For assessing financial health, Credit Score and Credit Rating are equally important factors with different functions. With a good credit score a borrower gets credit cards, online business loan, or other financial instruments, it is more important for corporate and government institutions, whose ability to raise capital is determined by the credit rating.

Knowing what good credit and bad credit are will thus improve your financial standing. It indicates that you are not overly indebted, use your available credit sparingly, and pay your bills on time. Anything needs a good credit rating to attract investors or gain finance at the minimum interest.

Read more: Understanding Credit Card Fees: What You Need to Know Before Applying