Credit Rating

What is a credit rating?

There are two types of credit rating: those that relate to consumers, and those that relate to businesses or to countries.

Consumer credit ratings are a broad (or ‘coarse’) class of credit scores, which in turn determine risk. They are usually measured with a five star rating, where one star relates to sub-prime credit customers and a five star ratings apply to customers with an excellent credit history with little risk of defaulting on payments. Average risk consumers have a three star credit rating.

In very general terms, the five levels of consumer credit rating are as follows:

One Star: People new to credit or who struggle with impaired credit, able only to access sub-prime credit offers at approximately twice the cost of the average rate.

Two Stars: Those rebuilding credit and with adverse credit recorded alongside good credit history, able to access all sub-prime credit and a small amount of mainstream credit, usually at around 150% of the average cost of credit.

Three Stars: This is the average credit rating and is the target area for most credit card companies. Those in this credit rating can borrow at average interest rates.

Four Stars: Generally older consumers or those with a long-established and history of good payments. Able to access most types of credit, often at around 80% of the average cost.

Five Stars: Very stable consumers with an impeccable credit history. These consumers are often known as ‘super accepts’ and are able to access credit at between 50%-80% of the average cost.

For companies, banks and countries, credit ratings are given by specialist risk assessors, the largest of which are all US companies: Standard and Poor’s, Moody’s, and Fitch. The credit ratings they use are all different, and are generally expressed in letters, and often the credit rating agencies, as they are called, will have differing opinions on ratings.

For an example: Moody’s calculates and provides long-term credit ratings, from ‘Aaa’ to the lowest rating of ‘C’.

In descending order, Moody’s credit ratings start with what is known as ‘investment grade’, and are Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2 and Baa3. Lower ratings are then classified as being of ‘speculative grade’ and are Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca and C.

The credit ratings imposed on banks, companies and governments work in broadly the same way as the ones used by consumers, in that they affect an individual’s ability to repay debt – the higher your credit rating, the easier it is to obtain the credit you need, and at a cheaper level of interest.


Q: How is my credit rating determined?

A: Your credit rating looks at your repayment history and publicly available information to determine how likely you are to default on a loan. The less likely you are to default, the higher your rating will be. Much like a credit score, how your credit rating is determined may differ between Credit Reference Agencies.

Q: What is the difference between a rating and a score?

A: They both perform the same basic purpose, which is acting as an indication of how positively a lender may view an applicant. Some credit reference agencies will show you both your score and your credit rating, but neither act as a guarantee that you will be accepted for a loan.

Q: How Can I see my credit rating?

A: checkmyfile offers the UK’s most detailed credit rating analysis, using data reported by 4 Credit Reference Agencies, not just 1, letting you see what lenders see. If you haven’t already, you can try checkmyfile FREE for 30 days, then for just £14.99 a month afterwards, which you can cancel online at any time.

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