Credit Rating
A credit rating is an evaluation of the creditworthiness of a borrower, whether an individual, corporation, or government. It reflects the likelihood that the borrower will repay its debt obligations in full and on time. Credit ratings are assigned by credit rating agencies, such as Standard & Poor’s, Moody’s, and Fitch, using a standardized grading scale. Higher credit ratings (e.g., AAA) indicate lower risk, while lower ratings (e.g., BBB or below) suggest higher risk.
Example
A corporation with a credit rating of AA is considered a low-risk borrower, making it easier for the company to secure loans at favorable interest rates.
Key points
• A credit rating assesses the creditworthiness of borrowers and reflects the likelihood of repaying debt.
• Ratings are assigned by agencies like S&P, Moody’s, and Fitch, using letter grades (e.g., AAA, BBB).
• Higher ratings indicate lower risk and easier access to favorable loan terms.
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