Why is it that the credit worthiness of individuals is tracked via 'credit rating (score)' while that of nations (soverign debt) is tracked via 'debt rating'?

2 Answers 2


While they are generally analogous, they have different objectives. According to Wikipedia "the performance definition of the FICO risk score (its stated design objective) is to predict the likelihood that a consumer will go 90 days past due or worse in the subsequent 24 months after the score has been calculated." Meanwhile debt ratings revolve around the entity's perceived ability to meet its financial obligations. Debt rating emphasizes that the score is on the underlying security (bond), which is purchased by investors.

It is also a matter of semantics. Both Investopedia and Wikipedia consider credit rating to be an umbrella term which encompasses the credit worthiness of individuals and large entities. Both also view debt rating to mean bond credit rating and credit score to refer to an individual's credit rating.

It's also a question of practicality. They need to have different names to differentiate them. It would be odd to think of investing in most individual's debt. So, it makes sense that the rating of such debt would have a different name. (Bear in mind that securitized mortgage and credit card debt are aggregated, not sold on an individual basis.)

  • Well, it's not exactly "ability" to pay, it's actual likelihood to pay. In the recent US debt downgrade, there was no real question that the US would be able to make its interest payments, but considerable doubt about whether it would pay them. Analogously, if I have money in the bank but I still fail to pay my bills by the due date, I get a poor credit score.
    – poolie
    Sep 20, 2011 at 23:39
  • (Though, it gets a bit philosophical about whether someone is "able" if they have the resources but not the will.)
    – poolie
    Sep 20, 2011 at 23:39

An individual "credit score" is a purely quantitative formula applied to various relevant statistics such as payment history, credit utilization, income, etc. In the United States, the three major agencies that assign these scores are TransUnion, Equifax, and Experian, and all three use a formula originally developed by Fair Isaac Co (FICO). A corporate/sovereign "credit rating" is a much more thorough and subjective analysis which incorporates an assessment of future profitability or economic growth.

There are certainly plenty of similarities. In both cases, each scoring/rating agency has its own methodology or set of data, and the more sophisticated market participants understand this and adjust for these differences themselves when using the scores/ratings. The terms used are a bit different, in that "scores" tend to be numbers and "ratings" tend to be on a letter scale.

As to why the terms are different, it is simply a semantic difference driven by history.

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