Credit Score Rating Scale - Can I Even Improve This?

If you have ever bought a car, a house, applied for a job or even rented an apartment, your credit report had a part in the deal you got. It is very important for you to know whats in it and how to use it to your advantage.

Of course, your credit report also includes personal information such as full name and address, employer's name and address and information regarding bankruptcy filings, court suits, foreclosures and short sales and trends in bills payment, to name a few. The big 3 bureaus collect your information to determine your score and rating.

Now, you will be asking what the difference is between a credit score and a credit rating since they appear synonymous. Yes, there are differences but the aims are basically similar - provide an objective lens for those who are trying to figure out whether you are likely to pay on time.

Credit Scores

Credit scores are your Fair Isaacs Corporation (FICO) score. This corporation developed the system used by all three major credit bureaus in the United States: TransUnion, Experian and Equifax to come up with the scores.

Your credit scores are expressed in the hundreds such that the lower the figure, the higher the credit risk. If you have a credit score of 350, you are a high risk debtor while a score of 850 means that you are a very low risk.

Also, it must be noted that the three major credit bureaus use different sets of criteria with varying weights to determine credit score although the same set of credit report information is used. You will most often be issued three different credit scores! Still, the three credit scores are often approximate their figures so you basically fall within a specific category of low, medium and high credit risk.

The criteria used to determine credit score include credit payment history, time length of credit history, current debts, frequency of applications for new credit and credit type mix. Please remember that each bureau places a different emphasis on each item. However, it is safe to assume that previous credit performance and current level of indebtedness get the most weight at about 30 percent each while the types of credit available and the time credit has been in use gets 15 percent each and pursuit of new credit is at 5 percent.

Credit Rating

Aside from the credit scores, most countries also use credit rating using a scale of 0 to 9. There are two types of credit rating signified by the addition of the letter "I" for installment credit such as home or auto financing and "R" for revolving credit like credit card debt.

Unlike the credit scores where the three credit bureaus collect the information from many creditors, the credit rating scheme is such that each creditor will provide its own rating for you. So, you might have an R1 in MasterCard and R5 in Visa depending on how you neglected to pay and whose debt you honored.

Indeed, you have to be aware of your credit score and credit rating because these numbers have a very real impact on your life.