Both credits have similarities and differences. Today we are going to see how we can calculate them and how we use them.
Credit ScoreÂ
Typically a credit score is a number comprising three digits. This number tells your lenders that you are a responsible buyer or not. It determines if you pay your debts on time and you are consistent with your payments.
Calculation of credit score
There are many kinds of credit scores such as FICO, vented score and fair Isaac corporation score. The calculation method and the credit score is the same for all the three credit bureaus. But the FICO. Because each lender uses FICO and its calculations when they want to determine if a borrower is worthy of keeping the credit or not.
Normally your credit score goes from 300 to 850. Between the score comprises 3 to 4 categories and each category has their own criteria at which they determine their credit score.
Credit ratings
On the other hand, the credit ratings are complete letter ratings that go to corporations and governments. Your investors use them to determine how risky it is to do business with you.
Calculation of credit rating
When the agencies are creating the credit ratings, they have their own determination level. But most credit ratings are created on the roles of S&P global. S&P has the AAA ratings for governments and investment corporations. This means the strongest capacity of completing the commitments of your financial statements at chemical prices of AA, B and C.
Usually the calculation of these ratings depends on the history of your borrower and how you are repairing the loans. If you have any kind of payments that you missed in the past, any kind of bankruptcy and defaults are also calculated in these credit ratings. The cash flows and Levels of your debt are also looked upon while creating the credit ratings account.
Most of the time the agencies look for cash flows and the levels of the borrower. If you have a study income and it looks like you are going to keep paying on time. Your credit rating will not stand study if the borrower and his economic situation does not look very steady.
Conclusion
In case of credit trading it is going to work as a letter that shows if you are creditworthy of not. The credit score which is numerical is also shows the creditor your worthiness. Usually this is used for the small business owners and simply for consumers. The creating agencies provide the credit ratings however the credit scores are determined by your lenders who gave you personal loans, mortgages or new credit cards.