Rating

What is a credit rating?

Borrowers are subject to ratings or credit scores to assess their creditworthiness, and credit scores change over time. However, the ratings that financial markets pay attention to are usually those obtained by large companies, municipalities and sovereign governments.

Where have you heard about credit ratings?

The loss of AAA credit ratings in countries such as the United Kingdom, France and the United States in the post-financial crisis economic recovery has attracted worldwide attention. Credit ratings affect the interest rate charged on the issuer's bonds.

The information you need to know about credit ratings...

The following three major agencies dominate the rating business: moody's, standard & Poor's and fitch. There are slight differences in the rating systems of the three agencies, but in general, AAA is the highest level, and below B indicates that the bond status is low. Class D refers to the default of the bond issuer.

If a bond has a high credit rating, it means that the company or government issuing the bond is likely to be able to repay it in a timely manner and is therefore relatively safe, but usually with low returns. Low-rated bonds are only suitable for sophisticated speculative investors who can take high risks with high returns.

Although the company, entity or government receiving the rating will pay the fee, the agency has a responsibility to carry out appropriate due Diligence after an objective review of its financial soundness and its ability to repay its debts. In this regard, these institutions have been criticized for providing misleadingly high ratings for unsound investments in the economic recovery after the 2008 financial crisis.