Credit Rating Definition

A person’s credit rating is simply a number that represents their credit worthiness—just like a report card grade represents a person’s academic performance. Many companies have their own formulas for deriving a person’s credit rating, but most companies rely on credit ratings calculated by a credit reporting agency. Because credit reporting agencies deal in credit all day—good credit, bad credit, boring credit, eye-popping credit—they know how to rate it, and they use complicated formulas to automate the process. If you’re buying furniture for the front room, the store will obtain your credit report which will include your credit rating. If your rating is good, they’ll sell you the furniture on credit. If your rating is so-so, they might suggest you buy cheaper furniture or buy less furniture. If your rating stinks, they’ll invite you to buy the furniture—cash only, please.