What is a credit rating?

Business & Management
#1

A credit rating is a numerical estimate of a borrower’s creditworthiness in general or in relation to a specific debt or financial obligation. Any entity seeking to borrow money from an individual, a business, a state or provincial authority, or a sovereign government can be given a credit rating. The entity obtaining a credit rating for itself or one of its debt issues pays these rating firms. Credit scores determine not only whether a borrower is authorised for a loan or debt, but also the interest rate at which the loan must be returned. The chance of a borrower defaulting within a year is reflected in a short-term credit rating. In recent years, this sort of credit rating has become the standard, although in the past, long-term credit ratings were given greater weight. Long-term credit ratings forecast the possibility of a borrower defaulting at any point in the foreseeable future.

#2

A Credit Rating is an assessment of the creditworthiness of a borrower. Individuals, corporations and governments are assigned credit ratings whoever wants to borrow money. Individuals are given ‘credit scores’, while corporations and governments receive ‘credit ratings’.

Why do countries get credit ratings?

National governments, not countries, are assigned credit ratings by agencies like Standard & Poor’s, Moody’s and Fitch. Governments require ratings to borrow money. They are also given ratings on their worth as investment destinations. A country requests a credit rating agency to evaluate its economic and political environment and arrive at a rating. This is done to position itself as a destination for foreign direct investment.