Types of Credit Rating

A credit rating, also known as a credit score, gives an idea of how likely it is that someone will pay back their debts in the future. It’s most commonly associated with loans, but they can also be used to evaluate your ability to pay back other kinds of debts, like credit cards and rent or utility bills. Each credit rating agency uses its unique model to assign ratings, but they’re all based on similar factors that determine whether you are a good or bad risk. Here are the main types of credit rating and the factors they consider to get their final score.

When you’re applying for any sort of loan, whether it’s to buy a car or start your own business, you’ll have to get a credit rating before you can move forward with your application.

The 3 Biggest Credit Rating Agencies

In America, we have three big credit rating agencies (CRAs): Equifax, Experian, and TransUnion. These three institutions make up a whopping 98% market share of all credit reporting in America. Though there is some overlap between these companies, they each collect data separately and maintain unique ratings. So while your Equifax score might be over 800, it won’t affect your Experian score. And vice versa. To get an idea of how scores differ between these companies and why you should pay attention to them, check out our handy guide: The 3 Biggest Credit Rating Agencies.

Know Your Credit Score 

When you use credit cards, apply for loans, or even open a bank account, a credit rating agency will likely be in your business. When you use your credit cards and make payments on time, you’re positively affecting your credit score. But in many cases, you don’t know exactly how these agencies work or what they do—especially because there are a lot of different kinds. This is where we come in. We’ll cover all sorts of things related to credit rating agencies: who they serve, what their role is, and why they’re important to any given company or person (like yourself). To do that, we’ll look at each kind of agency individually: How Do Credit Rating Agencies Work?

Credit Rating Types

There are several types of credit rating, each with its implications for how lenders view a borrower. Some, like FICO and VantageScore, are created by non-profit credit rating agencies that evaluate consumers based on their overall credit history. Others, like bankcard scores, use entirely different factors to measure financial activity and should not be confused with traditional credit ratings. 

Credit Rating Scale

A credit rating scale measures your financial integrity, similar to a golf or tennis scorecard. It’s your credit rating, which can change based on a variety of factors. There are different credit rating scales, but most fall into one of three categories: Financial institutions like banks and lenders use one type, called debt-to-income ratio; employers and landlords use another type, called Experian. Debt-to-income ratio: Debt-to-income ratios measure how much you owe compared with how much you make in a given month. To calculate it, divide your total monthly debt by your gross monthly income (before taxes). For example, if you have $3,000 in credit card debt and $5,000 in gross monthly income before taxes, then you have a DTI of 60%. Experian: Experian is considered more reliable than debt-to-income ratios because it looks at more information about borrowers’ financial histories. The formula is fairly complex—it considers things like savings accounts balances as well as amounts owed—but it’s all meant to help businesses determine whether they should loan money to an individual or not.

Conclusion

Today, there are many different types of credit rating agencies that measure consumers’ creditworthiness. It can be hard to keep track of them all, but they all play an important role in monitoring your financial status, so it’s important to know what they are and how they work before you apply for any type of loan or credit card. That way, you’ll avoid any potential problems when it comes time to apply and will know exactly what you can expect out of each type of credit rating agency.