The primary reason for grading a coin is determination of the coin’s market value based on its physical condition, including how well the coin was initially struck, how well it has been preserved, and how much wear or other damage it has sustained over time.
In the early years of coin collecting, three general terms were used to grade coins: good, fine, and uncirculated. As the market for coins grew in the late 19th and early 20th centuries, a more precise grading standard became needed. In 1949, Dr. William Sheldon developed the Sheldon Scale.
Today, a modified version has become the primary scale for grading coins. It is used by most major third-party grading services, including NGC and PCGS. The Sheldon Scale assigns a numerical grade between 1 and 70 based on the coin’s condition. It is associated with abjectival terms that help to describe the coin.
The lower end of the scale describes coins that have been heavily worn due to circulation, or have been damaged in some way. A coin graded 1 (also known as Poor or P1) is badly worn or damaged. The type is barely discernible, and none of the finer details of the design remain apparent.
On a coin graded 2 (Fair or F2), the type and date can be discerned, but the coin is extremely worn. The coin grade AG-3 (‘About Good’) identifies coins with the date and type discernible. Some lettering should be visible, but not necessarily readable. A coin graded G4 (Good) is heavily worn, but outlines of the major design features can be seen.
The middle of the scale describes coins that appear worn, but whose design features can still be seen clearly. G6 (or Good-plus) coins have a full rim visible, and all major features of the coin design have clear outlines, but there is heavy wear. A VG-8 (Very Good) coin is similar to the G6 grade, but with less significant wear.
F-12 (Fine) coins have a distinct rim, and all design features are clear, showing some detail. However, the whole coin is moderately and evenly worn. Similarly, VF-20 (Very Fine) coins are clearly readable, with lightly worn details, and the whole coin shows moderate wear on the high points. VF-30 (Good Very Fine) coins have less wear to the high points of the coin’s design.
As the scale progresses to the higher numbers, the coins show less wear to the design. EF-40 (Extremely Fine) coins have sharp detail, with slight but obvious wear to the high points. An XF-45 (Choice Extremely Fine) coin has great eye appeal, with slight wear on the high points. AU-50 through AU-58 (About Uncirculated, Good About Uncirculated, and Choice About Uncirculated) have some remaining luster from the mint, with only a hint of wear on the high points.
The grades from MS-60 to MS-70 describe a ‘mint state’ coin. Free from any wear, the distinctions between these grades are based primarily on eye appeal, quality of luster, and the presence or absence of hairlines or other marks within the coin design itself.
For the highest grade, a coin must have a sharp strike and be perfectly-centered on a flawless planchet (or coin blank). An MS-70 or “Mint State Perfect” coin has no microscopic flaws visible at 5x-8x magnification. All coins graded MS-60 and higher are considered to be “Mint State” coins.
The process of assigning a specific numerical grade to a coin is not an exact science. Frequently, experts will disagree on the exact number to assign a coin. That being said, using this scale you will be able to get a fairly good idea of the grade of the coin. This is important because, generally speaking, the higher the grade of a coin, the higher its price.