Credit Rating
IntermediateA credit rating is an assessment of how likely a borrower, such as a company or government, is to repay its debts in full and on time, usually expressed as a letter grade.
Credit ratings are issued by credit rating agencies, the best known of which are S&P Global Ratings, Moody's and Fitch Ratings. They assess the financial strength of borrowers and the specific debts they issue.
Ratings use letter scales. On the scales used by S&P and Fitch, the highest rating is AAA, followed by AA, A, BBB and lower grades down to D for default. Moody's uses a similar scale with different symbols, such as Aaa and Baa. Ratings of BBB- or Baa3 and above are called investment grade; lower ratings are called high yield or speculative grade.
For example, a company rated AA is considered very likely to repay, while one rated B is considered much riskier.
Credit ratings strongly affect borrowing costs. Higher-rated borrowers can borrow at lower interest rates. Many investors, such as pension funds, are restricted to holding investment-grade debt, so a downgrade below that level can force them to sell.
Ratings are opinions, not guarantees. Rating agencies were widely criticised for giving high ratings to risky mortgage securities before the 2008 financial crisis.
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