What are Credit Scores? Definition, Ranges & Calculation

In the complex world of personal finance, few metrics hold as much sway over our financial lives as the elusive credit score. It’s the numerical gatekeeper that lenders, landlords, and even potential employers use to gauge our financial reliability and trustworthiness.

Yet, for many, understanding what exactly a credit score is and how it impacts our lives can feel like deciphering a cryptic code.

A credit score rating chart shows your business’s likelihood of meeting its debt obligations.

In other words, it shows your creditworthiness.

Debt is one of the financial instruments you can leverage to grow and expand your business. It’s one of the go-to sources of capital for the expansion of businesses worldwide.

You’re unlikely to expand faster without a well-structured debt.

A rating expresses the likelihood that you’ll go into default within a given time. The timeframe could be a year (short-term), anything above that is considered long-term.

Keeping a close eye on your credit score rating could spell the difference between financial health and turmoil.

Let’s assume you’ve gathered enough credit score rating data points for in-depth analysis.

How do you make sense of this data faster?

This is where credit ratings scale charts, such as the Gauge Chart and Likert Scale Chart, come in.

A Likert Scale Chart has choices to help you get a holistic view of your business credit score ratings. It’s straightforward to read and interpret a Likert Scale Chart, as you will see later.

Table of Content:

1. What is a Credit Score?
2. Understanding The Basics of Credit Scores:
3. Why having a Good Credit Score is Important?
4. What are the Credit Score Ranges?
5. How are Credit Scores Calculated?
6. What is a Credit Score Rating Chart?
7. How to Present Credit Score Using Credit Score Rating Chart?
8. Credit Score Example
9. How to Improve Your Credit?
10. Benefits of Using a Chart for Credit Score Rating 
11. Factors Can Affect Your Credit Scores
12. Factors that Don’t Affect Your Credit Scores
13. Wrap Up

What is a Credit Score?

Definition: A credit score is a numerical representation of an individual’s creditworthiness, which is used by lenders to evaluate the likelihood that a person will repay their debts on time. It is a key factor in determining whether someone qualifies for credit, such as loans, credit cards, or mortgages, and what interest rate they will be offered.

Understanding FICO Score:

FICO Score, developed by the Fair Isaac Corporation, reigns as the most widely used credit scoring model in the United States. Ranging from 300 to 850, this three-digit number assesses your creditworthiness based on five key factors: payment history, credit utilization, length of credit history, types of credit used, and new credit inquiries. Lenders heavily rely on FICO Scores to evaluate loan applications, with higher scores indicating lower credit risk and vice versa.

Exploring VantageScore:

In recent years, VantageScore has emerged as a formidable competitor to FICO Score, offering a similar yet distinct approach to credit scoring. Developed collaboratively by the three major credit bureaus””Equifax, Experian, and TransUnion””VantageScore employs a scoring range of 300 to 850 and considers similar factors as the FICO Score, albeit with some variations in weighting. While the FICO Score remains dominant, VantageScore provides consumers and lenders with an alternative perspective on creditworthiness.

Understanding The Basics of Credit Scores:

Here’s a breakdown of the key components and concepts related to credit scores:

1. Numerical Representation: Credit scores typically range from 300 to 850 in the United States, with higher scores indicating better creditworthiness. The score is calculated based on information in an individual’s credit report.

2. Credit Reporting Agencies: Credit scores are generated by credit reporting agencies, also known as credit bureaus, such as Equifax, Experian, and TransUnion. These agencies collect and maintain information about individuals’ credit history, including their payment history, amounts owed, length of credit history, types of credit used, and new credit accounts.

3. Factors Affecting Credit Score: The exact formula used to calculate credit scores varies between credit reporting agencies, but common factors include:

• Payment History: Whether you’ve made timely payments on credit accounts.
• Credit Utilization: The amount of credit you’re using compared to your credit limits.
• Length of Credit History: How long you’ve had credit accounts open.
• Types of Credit: The variety of credit accounts you have, such as credit cards, loans, and mortgages.
• New Credit: How many new credit accounts you’ve opened recently?

4. Importance of Credit Score: A person’s credit score plays a crucial role in their financial life. It not only determines their eligibility for credit but also affects the terms and conditions of credit offers. A high credit score can result in lower interest rates and better loan terms, while a low credit score may lead to higher interest rates or difficulty obtaining credit.

5. Monitoring and Improvement: Individuals need to monitor their credit scores regularly to ensure accuracy and identify any potential issues. There are several ways to improve credit scores, such as making timely payments, keeping credit card balances low, avoiding opening too many new accounts, and maintaining a long credit history.

Overall, a credit score serves as a tool for lenders to assess risk and for individuals to understand their financial standing and borrowing capabilities. By maintaining a good credit score, individuals can access credit more easily and on better terms, ultimately contributing to their financial well-being.

Why having a Good Credit Score is Important?

Having a good credit score is crucial because it helps you secure loans and credit cards at lower interest rates, which can save you money over time. It also increases your chances of being approved for rentals, jobs, and insurance.

In essence, a high credit score reflects financial reliability and can provide better opportunities for financial stability.

What are the Credit Score Ranges?

It’s usually on a scale of 300 to 850, which estimates the likelihood of repaying debt. The score is calculated using data from your credit accounts. This data is mostly gathered by credit-reporting agencies and compiled into a report you can easily refer to.

The highest credit score you can attain is 850. The higher the credit score, the lower the perceived risk.

The table below will provide a clue about the credit score rating range, plus the corresponding risk level.

Credit Quality	Credit Score Ranges
Bad: severe risk	300-549
Poor: high to moderate risk	550-649
Average/Fair: moderate to minor risk	650-699
Good: low risk	700-749
Excellent: negligible risk	750-850

• Poor to Fair: A poor to fair score implies it’ll be difficult for your business to qualify for credit products. You might want to start with a credit-builder loan to create more confidence.
• Fair to Good: A fair to good score implies you may qualify for some credit options at good rates. You’ll probably qualify for a traditional unsecured loan for your business.
• Good to Excellent: A very good or excellent score depicts you qualify for the best debt options at the lowest advertised rates. This is the place you want your business to be located if your goal is to grow and expand according to your long-term plans.

How are Credit Scores Calculated?

Let’s assume your credit score rating data is massive. It has been accumulating for years.

How can you analyze a table with hundreds of rows and columns of data? It would probably cost you a lot of time to make sense of the data.

This is where charts with rating scales, such as Gauge Chart and Likert Scale Chart, come in.

How to Present Credit Score Using Credit Score Rating Chart?

One time-saving way to analyze your credit score rating data is using charts and graphs, such as Likert Scale and Gauge Chart.

You’re unlikely to find visualizations designed purposely to visualize credit score rating data in Microsoft Excel.

We’re not advocating you leave Microsoft Excel. 

Install a particular third-party add-in in your Excel Mac to access credit score rating charts, such as the Likert Scale Chart.

The application is called ChartExpo.

What is ChartExpo?

ChartExpo is an add-in you can easily install in your Microsoft Excel to access credit score rating charts.

ChartExpo is inexpensive. You’ll only spend $10 every month. Besides, you’re free to cancel your subscription anytime.

Also, you don’t need coding skills to generate insightful and ready-made credit score rating charts for your stories.

How to install ChartExpo in Excel?

1. Open your Excel application.
2. Open the worksheet and click on the “Insert” menu.
3. You’ll see the “My Apps”.
4. In the office Add-ins window, click on “Store” and search for ChartExpo on my Apps Store.
5. Click on the “Add” button to install ChartExpo in your Excel.

ChartExpo charts are available both in Google Sheets and Microsoft Excel. Please use the following CTA’s to install the tool of your choice and create beautiful visualizations in a few clicks in your favorite tool.

Credit Score Example

Before making any chart let’s first see how we will map credit score data:

Scales	Credit Quality	Credit Score Ranges
1	Very Bad (Severe Risk)	300-549
2	Bad (High to Moderate Risk)	550-649
3	Average/Fair (Moderate to Minor Risk)	650-699
4	Good (Low Risk)	700-749
5	Excellent (Negligible risk)	750-850

Suppose you have hypothetical credit score data of numerous companies which are located in different states of the USA. Some of these companies have good credit scores and some of them have bad credit scores.

Now, let’s have a look at the data below:

States	Scales	Count
New York	1	216
New York	2	231
New York	3	556
New York	4	567
New York	5	966
Alabama	1	126
Alabama	2	285
Alabama	3	646
Alabama	4	609
Alabama	5	550
Texas	1	145
Texas	2	211
Texas	3	854
Texas	4	752
Texas	5	812

• To get started with ChartExpo, install ChartExpo in Excel.
• To use ChartExpo after installation, select My Apps from the INSERT menu.

• Select ChartExpo from My Apps and click Insert.

• Once ChartExpo is loaded. Click on the Likert Scale Chart from the list of charts.

• Click “Create Chart From Selection” after selecting the data from the sheet.

• The final chart will look as follows.

• If you want to have the title of the chart, click on Edit Chart, as shown in the above image.
• To change the title of the chart, click on the pencil icon that is available very next to Chart Header.
• It will open the properties dialog. Under the Text section, you can add a heading in Line 1 and enable the Show option. Give the appropriate title of your chart and click on the Apply button.
• For saving changes click on Save Changes. This will persist the changes.

• Check out the final chart below.

Insights

• In New York, 60% of companies have a good credit score, 22% of companies have an average credit score, and 18% of companies have a bad credit score.
• In Alabama, 52% of companies have a good credit score, 29% of companies have an average credit score, and 19% of companies have a bad credit score.
• In Taxes, 29% of companies have a good credit score, 31% of companies have an average credit score, and 13% of companies have a bad credit score.
• Overall, 57% of companies have a good credit score, 27% of companies have an average credit score, and 16% of companies have a bad credit score.

How to Improve Your Credit?

1. Pay Bills On Time: Ensure all bills and debts are paid by their due dates to build a positive payment history.
2. Reduce Credit Card Balances: Keep credit card balances low relative to your credit limit.
3. Avoid New Credit Inquiries: Limit applications for new credit to prevent frequent hard inquiries.
4. Maintain a Long Credit History: Keep old accounts open to demonstrate a longer credit history.
5. Diversify Your Credit Mix: Use a mix of credit types, like credit cards and loans, responsibly.

Benefits of Using a Chart for Credit Score Rating

• A Credit Rating Chart Saves You Time

Analyzing credit score data in bulky tables can be frustrating and expensive in the long run.

Credit Score rating charts, such as the Likert Scale Chart, can help you save time and energy by analyzing your business’s ability to meet its debt obligations.

• Flexible and Easy to Plot

A credit score rating chart provides a versatile way of comparing data for in-depth insights.

With data visualization tools such as ChartExpo, you can easily visualize your credit score data for in-depth insights to measure your business’s ability to service its debt.

• Risks Versus Opportunities

Opportunities are always appearing in your data.

You can continuously improve your credit rating standing using data if you have credit score rating charts in your armory.

These charts can uncover hidden opportunities by pointing out gaps and outliers in your data.

• Tracking Patterns and Trends Over Time

One of the common uses of a credit score rating chart is to highlight changes between two or more key variables in your data.

You can easily know when your credit rating score is taking a nosedive or growing.

You’ll never get caught off-guard by your debtors.

• Compare Values of Two Related Measures

Some credit score rating charts show changes over time.

This means you can easily compare the results of two metrics with a common attribute. In other words, you can learn how a data point influences another data point.

This will help you optimize your credit score rating with long-term growth in mind.

• Create Compelling Stories

Credit score rating charts can help you create compelling data stories you can easily share with top management and other key stakeholders.

These charts are easy to read, you don’t need specialized skills or knowledge to make sense of credit score rating data.

Factors Can Affect Your Credit Scores

• Payment Track Record: Consistent, on-time payments enhance your score, while missed or late payments can damage it.
• Credit Usage Ratio: Using a large portion of your available credit can negatively impact your score.
• Credit History Duration: A longer credit history generally favors your score, demonstrating a stable credit behavior.
• Recent Credit Applications: Applying for new credit frequently can cause a temporary dip in your score.

Factors that Don’t Affect Your Credit Scores

• Income Level: How much you earn does not influence your credit score.
• Employment Status: Whether you’re employed or unemployed has no direct effect on your credit score.
• Bank Account Balances: The amount of money in your checking or savings accounts doesn’t affect your score.
• Marital Status: Your credit score is not influenced by whether you are married, single, or divorced.
• Rent Payment History: Although it’s important, regular rent payments are generally not factored into your credit score unless reported to the credit bureaus.

FAQs:

What is a good credit score?

A good or excellent Credit score depicts you qualify for the best debt options at the lowest advertised rates.

If your goal is to grow and expand according to your long-term plans, this is where you want your business to be.

A fair to good score implies you may qualify for more credit options at good rates or terms.

What is the highest credit score?

The highest credit score you can achieve is 850. This is the maximum score on most credit scoring models, such as FICO and VantageScore. A score of 850 indicates excellent creditworthiness, which can help secure the best interest rates and financial terms.

Wrap Up

A credit rating scale chart shows your business’s likelihood of meeting its debt obligations.

A rating expresses the likelihood that you’ll go into default within a given time. The timeframe could be a year (short-term).

Keeping a close eye on your credit score rating could spell the difference between financial health and turmoil.

Let’s assume you’ve gathered enough data points for in-depth analysis.

How do you make sense of this data?

This is where credit rating scale charts, such as the Likert Scale, come in.

A Likert Scale Chart has choices to help you get a holistic view of your business credit score ratings. It’s straightforward to read and interpret a Likert Scale Chart.

Microsoft Excel lacks credit rating scale charts. We’re not advising you to do away with your Excel.

So, what’s the solution?

We recommend you install an add-in, such as ChartExpo, to access the Likert Scale Chart and other credit score rating-friendly charts.

ChartExpo is an Excel add-in loaded with ready-made credit score rating charts, such as the Likert Scale Chart.

Sign up for a 7-day free trial today to access ready-made graphs for visualizing credit score rating data.