What is a credit rating?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A credit rating is a ranking that represents how able a person or business is to repay a debt, based on their credit history. Lenders, leasing companies and suppliers that sell on account can use it when deciding whether to offer credit and on what terms. It sums up a track record rather than describing it in detail.
A credit rating and a credit history are related but not the same. The history is the detailed record of past credit arrangements, such as loans, cards and accounts with suppliers. The rating condenses that record into a single ranking, so that very different histories can be compared at a glance.
Because the rating rests on the history, it reflects how past credit was handled. A bookkeeping system that lists every loan and card repayment and every supplier bill by due date keeps those dates in view. The same idea works in reverse when a business checks a customer's credit before agreeing to sell to them on account.
In Australia
business.gov.au's glossary describes a credit rating as a ranking drawn from someone's credit history that stands for how able they are to repay what they borrow. It refers readers to ASIC's Moneysmart website for more on credit ratings.
Its guidance on payment terms suggests running a credit check on a customer before offering them credit, since a customer who pays late, or not at all, can put pressure on cash flow.
Common mistakes
- Treating a credit rating as the whole story without looking at the detailed credit history behind it.
- Letting loan or card repayments slip because their due dates are not recorded anywhere.
- Assuming a customer with a good rating will pay every invoice on time.
Related terms
Related service
Accounts payable and receivable
Bills and invoices tracked, with you approving every payment.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Payment terms
business.gov.au, Australian Government. Current at 16 October 2026, released 18 December 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.