A-Credit

What Is A-Credit?

A-Credit is a designation that a lender may assign to a borrower with a high credit score. It is part of a letter-grading system some lenders use to qualify borrowers. The better the borrower's grade, the lower the interest rate they are likely to be charged on a loan or credit card.

Understanding A-Credit

Lenders base an A-Credit grade (or any other grade) on a number of factors. A major one is the borrower's credit score. The most widely used credit score is the FICO score from Fair Isaac Corporation. It ranges from 300 to 850.

Lenders can use different grading scales, so letter grades are not always associated with the exact same FICO scores. For example, some lenders might consider a FICO score of 650 to be an A, while some others might not. Some lenders will apply pluses or minuses to their letter grades, while others use strictly A, B, C, D, and so on. A plus or minus grade gives more depth to the score. For lenders that use pluses and minuses, a grade of A+ would indicate the highest creditworthiness.

Why A-Credit Matters

Borrowers don't need a perfect credit score to qualify for a loan, but their scores do matter. Higher scores or letter grades can help them qualify for lower interest rates, making loans less expensive, which in turn makes it easier to keep up with their payments and maintain their strong credit scores. Lower scores or grades can mean higher interest rates and make it harder to get a loan at all.

How to Get A-Credit

FICO scores are based on a set of factors: payment history, total debt owed, length of credit history, types of credit, and new credit. Lenders typically reward high FICO scores with a higher letter grade.

To achieve a high score, borrowers need to pay their bills on time, keep a low amount of debt, and show they are making consistent progress toward paying off any debts they have. It also helps to have more than one type of credit, such as a credit card plus a mortgage or car loan. A longer credit history can help boost a score because it shows how well the borrower has handled debt over time.

Under federal law, consumers can obtain at least one free credit report per year from each of the three major credit bureaus. The official website for that purpose is AnnualCreditReport.com.

Checking these free reports can help borrowers see where they stand and determine whether they need to improve. It's also worth checking credit reports periodically to see if they contain any errors or hints of identity theft, such as unfamiliar accounts. The credit bureau websites explain how to contest erroneous information.

Example of an A-Credit Score

Daniel is a recent college graduate and has a credit score of 550. He is not eligible for most types of loans and finds it difficult to rent a decent apartment because landlords in his area generally ask for a credit rating of B or above (550 is most likely a D rating).

After getting his first job, Daniel applies for and is granted a secured credit card. He makes regular use of the card and pays his bill on time each month. His credit score improves. Subsequently, he is approved for a conventional, unsecured credit card that offers more flexible terms and a higher credit limit. Daniel is disciplined and continues to pay his monthly bill on time.

Over time, Daniel's credit score rises to 700, putting him in A-credit territory. Now he should be able to get his apartment and take out other loans if he ever needs to.