Credit ratings

From MarketsWiki
Revision as of 21:51, 15 August 2011 by JohnJLothian (talk | contribs)
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)
Jump to navigation Jump to search

Marquette Partners.jpg

A credit rating assesses the credit worthiness of an individual, corporation, or country. At its most basic, a credit rating lets a lender or investor know the probability of the company or individual being able to pay back a loan. A poor credit rating means a high risk of defaulting. Companies with poor credit ratings usually pay a higher interest rate when borrowing.

Ratings are usually based on borrowing and repayment history along with the availability of assets and extent of liabilities.

Corporations are assigned credit ratings by credit rating agencies such as Standard & Poor's, Moody's and Fitch Ratings. The ratings have letter designations such as AAA (the highest rating), B, CC. The Standard & Poor's rating scale is as follows: AAA, AA, A, BBB, BB, B, CCC, CC, C, D. Anything lower than a BBB rating is considered a speculative or junk bond. The Moody's rating system is as follows: AAA, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C.