A credit rating assesses the credit worthiness of an
individual, corporation, or even a country. Credit ratings are calculated from
financial history and current assets and liabilities. Typically, a credit rating
tells a lender or investor the probability of the subject being able to pay back
a loan. However, in recent years, credit ratings have also been used to adjust
insurance premiums, determine employment eligibility, and establish the amount
of a utility or leasing deposit.
A poor credit rating indicates a high risk of defaulting on a loan, and thus
leads to high interest rates.
[edit] Personal credit ratings
In countries such as the United States, an individual's Credit history is
compiled and maintained by companies called credit bureaus. In the United
States, credit worthiness is usually determined through a statistical analysis
of the available credit data. A common form of this analysis is a 3-digit credit
score provided by independent financial service companies such as the FICOŽ
credit score. (The term, a registered trademark, comes from Fair Isaac
Corporation, which pioneered the credit rating concept in the late 1950s.) or by
the bureaus themselves.
One's credit score, along with their credit report, affects one's ability to
borrow money through financial institutions such as banks.
In Canada, the most common ratings are the North American Standard Account
Ratings, also known as the "R" ratings, which have a range between R0 and R9. R0
refers to a new account; R1 refers to on-time payments; R9 refers to bad-debt.
The factors which may influence your credit rating are:[1]
ability to pay a loan
interest
amount of credit used
saving patterns
spending patterns
[edit] Credit rating agencies
Main article: Credit rating agency
Credit scores for individuals are assigned by credit bureaus (US; UK: credit
reference agencies). Credit ratings for corporations and sovereign debt are
assigned by credit rating agencies.
In the United States, the main credit bureaus are Experian, Equifax, and
TransUnion.
A relatively new (but important) credit bureau in the US is Innovis.
In the United Kingdom, the main credit reference agencies for individuals are
Experian, Equifax, and Callcredit.
In the Canada, the main credit bureaus for individuals are Equifax, TransUnion
and Northern Credit Bureaus/ Experian.[2]
The largest credit rating agencies (which tend to operate worldwide) are
Moody's, Standard and Poor's and Fitch Ratings.
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