Credit Rating

• A credit rating estimates the credit

worthiness of an a financial security, a
corporation, local government or even
a country.
• It is an evaluation made by credit reporting
agency of a risk of buying into a specific
security offering and based on a number
of factors.
• Credit ratings are calculated from financial
history and current assets and liabilities.
• Typically, a credit rating tells a lender or
investor the probability of the subject being
able to meet payment requirements for
interest and principal repayment.
 What is A Credit Rating
An opinion on the issuer’s capacity to meet its financial obligations on a
particular issue in a timely manner, for example long-term bonds:
 Distinction Between Credit Rating and
Reporting
A Credit Rating Agency (CRA) is a company that is responsible for
assessing the financial strength of a company or government
entity. This includes domestic and foreign companies. The main area
that a credit rating agency focuses on is the ability of the company or
government entity to meet the interest and principle payments on
their debts and bonds.
• A credit rating agency is different from a credit reporting agency.
– A credit reporting agency is responsible for compiling financial data
that is necessary for loan decisions.
– A credit rating agency does all the statistical assessments that are
involved in placing a rating on a company or organization’s credit
history..
– A credit rating agency is responsible for providing investors with
information about an organization’s creditworthiness.

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 Meaning and Definition
• A Credit Rating issued by a credit rating agency is an assessment
of the credit worthiness of individual financial securities (For
example, a bond) and debt issued by corporations, government
issued securities or even a country’s ability to repay debt.
• Credit Ratings are assigned by rating agencies to companies and
debt instruments, are designed to gauge the likelihood that a
company will default on its obligations to creditors. Thus, they
give investors a rough idea of the risk associated with loaning
money to the entity being rated.
• Credit ratings are forward-looking opinions about credit risk. It
express the agency’s opinion about the ability and willingness of
an issuer, such as a corporation or state or city government, to
meet its financial obligations in full and on time.

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