Credit rating scale and chart
Credit rating is likely the most confusing term in consumer credit industry. The best way to look at the credit rating is to visualize a scale or chart where letters A, B, C and so on can be assigned to a credit score scale which varies slightly among the three credit reporting agencies. Equifax, Experian and TransUnion all have a credit rating scale which consists of 8 segments. Each chart segment represents a credit score range which contains the percentage of U.S. consumers whose credit scores fall within. Once you have you scores, you can see where you fit in. So essentially, all the credit rating scale does is compares your score to the scores of other consumers.
You often hear that a credit score is a key indicator of your credit worthiness, representing the likelihood to meet or become delinquent on a credit obligation in the future. But it only determines your credit worthiness with respect to the others. Are you or John Smith next door is more likely to default on a loan. Hence, it rates you.
The real credit scores which are used by a lender to determine your eligibility for a loan and its terms, have 8 credit ranges which we can designate for illustration purposes only as A, B, C, D, E, F, G, H. Again, unlike VantageScore rating scale which grades its ranges as A, B, C, D, F, the real credit rating scale does not use letter grading. The three credit agencies use different formulas,
Equifax FACTA BEACON 5.0
Experian FAIR ISAAC VER. 2
TransUnion FICO CLASSIC 04
and that is why you have three different scores each having a slightly different scale, with the middle score being the crucial when you apply for a mortgage. When it comes to auto loans or credit cards, lenders often suffice with just one score.
The VantageScore is also developed by Equifax, Experian and TransUnion, but it has the same credit scoring algorithm for all three, resulting in one score. While VantageScore model weighs payment history, credit utilization, outstanding balances, depth of credit, recent credit, and available credit to calculate your credit score, it is useless for all practical purposes.
Here are the credit rating scale charts for Equifax, Experian and TransUnion. Note the differences among the percentages and score ranges in the A and H ratings. And again, the letters are simply for a better visualization and are not used by credit agencies. Each credit agency scoring model is different and a chart represents a snapshot of credit in a particular time, so the percentages change because the number of consumers within a given chart segment can shift to another segment/range any time because of changes in their credit scores.
And here is credit rating scale chart for VantageScore, which as you can see uses only 5 credit ranges and is just one number for all three credit reporting agencies. The letter grading is used in VantageScore scale.
Sun Mar 27, 2011 06:03PM | Copyright: www.bad-credit-advisor.com | More in Credit Score Help | Comments (0)
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