|
 A credit rating estimates the credit worthiness of an individual,
corporation, or even a country. It is an evaluation made by credit bureaus of a borrower’s overall credit history.[1] A credit rating is also known as an evaluation of a potential borrower's ability to
repay debt, prepared by a credit bureau at the request of the lender (Black's Law Dictionary). 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, or the refusal of a loan by the creditor.
Personal credit ratings
 An individual's credit score, along with his or her credit
report, affects his or her ability to borrow money through financial institutions such as banks.
The factors which may influence a person's credit rating are:[2]
- ability to pay a loan
- interest
- amount of credit used
- saving patterns[not in citation given]
- spending patterns
- debt
In different parts of the world different personal credit rating systems exist
North America
 In the United States, an individual's credit history is compiled and
maintained by companies called credit bureaus. 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 FICO credit score.
The term FICO is a registered trademark, comes from Fair Isaac
Corporation, which pioneered the credit rating concept in the late 1950s.
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. Very few people maintain the R0 status for long, as there
are similar mechanisms in place in Canada that would allow for monthly updates of one's credit rating.
|
