Coin grading is subjective. The grade of a coin is an opinion and may vary from one person to another.
Collectors in the United States utilize the Sheldon Scale system of coin grading, a numeric system from 1 to 70 for determining the grade of a coin. Understanding the Sheldon Scale is of utmost importance for anyone with a hobby in numismatics. At the bottom of this page, there is a rough description of various grades; however, it should only serve as an outline to coin grading. The best experience is gained by viewing coins which have already been graded by professionals using industry standards.
PCGS Photograde is a free resource that allows people to view high-resolution photographs of many United States coins in almost any grade. I highly recommend this resource for those that are learning to grade coins.
Unfortunately, not every coin is eligible for a numeric grade. Some coins may have issues which allow them to only receive a "details" grade. These are often referred to as "problem coins" and typically sell at a large discount compared to their problem-free counterparts. For example, a problem coin that would normally receive a grade of Extra Fine 45 (XF-45), would instead receive a grade of Extra Fine Details (XF Details). Problem coins are not eligible for numeric grades because they are not comparable in terms of value with those that are problem-free, even if they exhibit the same amount of wear.
It is very important to be able to identify problem coins so that you do not overpay. Some problems are considered worse than others, an otherwise nice coin with a moderate rim ding may command higher prices than a harshly cleaned coin.
The following is a small list of commonly found problems:
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Cleaning - Coins which have been cleaned in manner that damages the surface of a coin.
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Environmental Damage - Coins featuring environmental damage, typically dug from the ground or left in sub-optimal conditions for long periods of time.
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Scratch(es) - Coins featuring particularly heavy and distracting scratch marks, either intentional or from circulation.
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Rim Ding(s) - Coins featuring strong and unattractive indentation(s) against the rim.
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Graffiti - Coins featuring intentional engraving or etching, moving the metal on the surface of the coin.
Reputable third party grading (TPG) companies such as PCGS, NGC, and ANACS train and employ professional coin graders to authenticate and encapsulate coins in a tamper-resistant holder for viewing, assigning them a grade. There are costs associated with submitting a coin for grading, but the end result is a coin which has been given a professional opinion regarding the grade. This increases buyer confidence and acts as an unbiased third-party opinion which serves to quell disagreements about a coin's grade.
It is also important to differentiate problems coins and error coins. The key thing to note is that error coins are mint-made irregularities and are typically sought-after.
Circulated Grades:
Poor 1 (PO1) - A coin exhibits the minimal amount of detail needed for identification, including the type and the date. Rims are worn flat and one side of the coin may be void of any identifiable design elements.
Fair 2 (FR2) - The outline of major design elements are more prominent but parts may still be faded into the coin. Rims are often still worn flat and a majority of the lettering is not readable.
Almost Good 3 (AG3) - Slightly more detail then the aforementioned grade. The majority of the lettering is readable, although many parts of the rims are still worn into the fields of the coin.
Good 4, 6 (G4 , G6) - Most of the rim is visible, and almost all of the lettering is readable. The outline of major design elements are fairly sharp.
Very Good 8, 10 (VG8 , VG10) - The rims are full, and all lettering is readable despite a flattened appearance.
Fine 12, 15 (F12 , F15) - Low amounts of detail are visible on the coin's design elements.
Very Fine 20, 25 (VF20, VF25) - Moderate amounts of detail are visible on the coin's design elements.
Very Fine 30, 35 (VF30, VF35) - Moderately high amounts of detail are visible on the coin's design elements.
Extra Fine 40, 45 (XF40, XF45) - High amounts of detail are visible on the coin's design elements. Minimal amounts of luster may be present around the protected peripherals of a coin.
Almost Uncirculated 50, 53 (AU50, AU53) - Very high amounts of detail are visible on the coin's design elements with moderate amounts of luster visible.
Almost Uncirculated 55 (AU55) - Nearly full detail with high amounts of luster visible.
Almost Uncirculated 58 (AU58) - Full detail with nearly complete luster; only a minimal amount of visible wear on the highest points prevents this coin from achieving a Mint State grade.
Uncirculated Grades:
Mint State 60 (MS60) - A weak strike featuring many marks and other abrasions from the minting process, particularly on focal areas, some harsh.
Mint State 61 (MS61) - A fairly weak strike featuring plentiful marks, many which may populate focal area, few harsh.
Mint State 62 (MS62) - A below average strike featuring plentiful marks.
Mint State 63 (MS63) - An average strike featuring an average amount of marks of average severity.
Mint State 64 (MS64) - An average strike featuring a below-average amount of marks with only mild marks visible in focal areas.
Mint State 65 (MS65) - An above-average strike featuring weaker and less prominent marks and abrasions. Minimal marks visible on focal areas.
Mint State 66 (MS66) - Well struck, focal areas are fairly clean with minor marks scattered about the coin.
Mint State 67 (MS67) - Strongly struck, all marks and abrasions on the coin are very weak, providing minimal distraction.
Mint State 68 (MS68) - Very strongly struck with isolated marks barely visible to the naked eye.
Mint State 69 (MS69) - A fully struck coin which must be heavily scrutinized in order to locate marks even under lower levels of magnification.
Mint State 70 (MS70) - A fully struck coin with no marks or abrasions visible even under lower levels of magnification.
Glossary:
Focal Area - An area of the coin where the eye is naturally drawn to, or an area where marks and other distractions are particularly easy to see.
Luster - The natural shine and reflective qualities of a freshly minted coin.
Strike - The strength of the imprint of the details on a coin. A softer strike may result in a coin not showing complete detail, even if it is uncirculated.