It measures the ability of a borrower to repay money. A high rating means that there is a lower risk of the borrower defaulting (being unable to make the required payments) on his or her debt and is therefore good while a low rating means the opposite – there is a higher risk of defaulting.
For individuals, the rating is usually expressed as a range of numbers – this is called a score. A score is derived from a person’s history maintained by reporting agencies such as Equifax, Experian, and TransUnion.
For businesses and the government, ratings are expressed as letters. Since different agencies can assign ratings, there is not a set range. For example, Standard & Poor’s (S&P) rating ranges from AAA (great) to C (poor). On the other hand, Moody’s rating ranges from Aaa to D.
Your rating can affect everything from approval for a loan to the amount of interest charged. It’s important to make sure that your rating is the best that it can be.
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