A system used to assess the ability of a company (or individual) to pay for goods and services, or the ability to borrow and repay. Some rating firms suggest a maximum amount of credit to be allowed. Popular rating systems in the USA are Moody, Standard and Poor, and Dun & Bradstreet. All companies are assigned a rating code: the highest is AAA, next is AA, and so on.
A credit rating assesses the credit worthiness of an individual, corporation, or even a country.
A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.
Personal credit ratings
In countries such as the United States, an individuals Credit history is compiled and maintained by companies called credit bureaus. In the United States, credit worthiness is usually determined through a statistical analysis of the available credit data. A common form of this analysis is a 3-digit credit score provided by independent financial service companies such as the FICO® credit score. One's credit score, along with their credit report, affects one's ability to borrow money through financial institutions such as banks. The factors which may influence your credit rating are: ability to pay a loan, interest, amount of credit used, spending money instead of using it for useful purposes e.g.
Corporate credit ratings
The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds.
Sovereign credit ratings
A sovereign credit rating is the credit rating of a sovereign entity, i.e.
Credit rating agencies
Credit scores for individuals are assigned by credit bureaus (US; Credit ratings for corporations and sovereign debt are assigned by credit rating agencies.
In the United Kingdom, the main credit reference agencies for individuals are Experian, Equifax, and Callcredit.
In the Canada, the main credit bureaus for individuals are Equifax, TransUnion and Northern Credit Bureaus (source: CIBC p.14).
The largest credit rating agencies (which tend to operate worldwide) are Moody's, Standard and Poor's and Fitch Ratings.
User Comments Add a comment…