What is a credit rating?
A credit rating is a simple number which many lenders use to determine whether or not they will give a loan or line of credit to an individual. One’s credit rating is impacted by a number of factors, some of which are controllable, others of which are not. There are three main agencies lenders go to in order to acquire an individual’s credit rating: TransUnion, Equifax, and Experian. Many lenders get two or more reports, as details may differ among the agencies. Opinions differ as to which of the agencies is the best or most accurate, with factions holding strong opinions on both sides for all three of the major agencies. The formula used by these three agencies is known as FICO, named after the Fair Isaac Credit Organization, one of the first companies to begin using credit ratings in the 1950s. A FICO score is a number ranging from 300 to 900, and roughly approximates the risk an individual poses to a lender. A rating of 300 is considered extremely high risk, while 900 indicates virt
A credit rating defines the financial strength of a borrower and helps the investor determine the likelihood that the bond issuer will pay coupon payments in a timely fashion and more importantly the initial investment at maturity. There are two major credit rating agencies; they are Standard & Poors and Moody. They both conduct extensive research on the bond issuer before assigning a credit rating to them. The bond rating will affect the interest rate that the issuer will need to pay investors; the stronger the credit rating, the lower the interest expense for the issuer. Each of the credit rating agencies rate debt securities with a slightly different ratings scale. Below, you will see what each of these agencies considers investment grade and non-investment grade securities. Lower credit ratings are not necessarily bad. In fact, many investors invest in lower grade securities to receive higher yields. Due diligence must always be done when investing in any bond, especially lower gra
Your credit rating is the embodiment of your entire credit history. It encompasses your credit assets, liabilities, and the other incidents in your financial past such as bad debts, unpaid loans, or good standing with creditors. The three major credit report bureaus determine your credit rating, as they are the ones collecting the information from different creditors and lenders. From all this information, an assessment shall be made on how much money can be extended to you in case you apply for a loan or other forms of credit extensions.
Credit Rating is an exercise conducted by a rating organisation to evaluate the credit worthiness of the issuer with respect to the instrument being issued or a general ability to pay back debt over the specified period of time. The rating is given as an alphanumeric code that represents a graded structure or creditworthiness. Typically the highest credit rating is that of AAA and the lowest being D (for default). Within the same alphabet class, the rating agency might have different grades like A, AA and AAA and within the same grade AA+, AA- where the “+” denotes better than AA and “-” indicates the opposite. For short term instruments of less than a year maturity, the rating symbol would be typically “P” (varies depending on the rating agency).
