Credit rating is the rating given to the borrower of the debt. A debt is a promise which has to be returned with the conditions(with interest) it was borrowed. Credit ratings are given by financial institutions to the borrower. The first credit rating financial institution was Moody's, in 1909 Moody's starting rating bonds. But none of them took it seriously until 1936 when rules were passed to stop bankers investing in speculative or junk bonds putting investors money in risk. Thus banks relied on financial institutional credit rating to invest.
The borrower might be anyone an individual, a corporate company or state authority or even governments. To get credit rating the entities will pay money to these financial institutes to get credit ratings for themselves or for debt issuers. Some of the known credit rating financial institutions are Standard and Poor's, Fitch or Moody's. These are the institutes which give the rating to government and big corporate industries.
The credit rating will indicate the likeliness of the borrower paying the money back within the stipulated time without defaulting. Positive credit rating means that the borrower has a good history of paying back the debts without defaulting. Negative credit rating means that the borrower has a poor history of paying his debt, which makes it difficult for the firm to further borrow money.
The credit rating not only gives a rating to the borrower but also influences the interest rate at which the money is borrowed. Credit ratings are never static they keep on changing depending on the newest data. Even a small default can cause the credit rating of the entity to fall down.
Difference between credit rating and credit score:
Credit rating is for the business and the government organisations, whereas credit scoring is for individuals. By using the payment history of the individual the credit score of the individual is calculated mostly it is in the range of 300 to 850. Nowadays even the employers are looking for credit scores to proxy the employee's responsibility.
When it comes to credit rating the ratings are denoted by alphabets ranging from AAA (Highest), AA+, C, D and BBB-(Lowest).Most of the BBB- is considered as junk bonds and are more likely to be a defaulter.
There are two types of Credit rating
In short-term credit rating, the rating is given to the organisation for defaulting within a year time. Long-term refers to defaulting after a long run.
The borrower might be anyone an individual, a corporate company or state authority or even governments. To get credit rating the entities will pay money to these financial institutes to get credit ratings for themselves or for debt issuers. Some of the known credit rating financial institutions are Standard and Poor's, Fitch or Moody's. These are the institutes which give the rating to government and big corporate industries.
The credit rating will indicate the likeliness of the borrower paying the money back within the stipulated time without defaulting. Positive credit rating means that the borrower has a good history of paying back the debts without defaulting. Negative credit rating means that the borrower has a poor history of paying his debt, which makes it difficult for the firm to further borrow money.
The credit rating not only gives a rating to the borrower but also influences the interest rate at which the money is borrowed. Credit ratings are never static they keep on changing depending on the newest data. Even a small default can cause the credit rating of the entity to fall down.
Difference between credit rating and credit score:
Credit rating is for the business and the government organisations, whereas credit scoring is for individuals. By using the payment history of the individual the credit score of the individual is calculated mostly it is in the range of 300 to 850. Nowadays even the employers are looking for credit scores to proxy the employee's responsibility.
When it comes to credit rating the ratings are denoted by alphabets ranging from AAA (Highest), AA+, C, D and BBB-(Lowest).Most of the BBB- is considered as junk bonds and are more likely to be a defaulter.
There are two types of Credit rating
- Short-term credit rating
- Long-term credit rating
In short-term credit rating, the rating is given to the organisation for defaulting within a year time. Long-term refers to defaulting after a long run.
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