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Credit Rating Agency

A credit rating agency is a company that evaluates the creditworthiness of borrowers, including individuals, businesses, and governments, by assigning credit ratings. These agencies assess the ability of the borrower to repay debt based on financial health, market conditions, and other factors. The most well-known credit rating agencies are Standard & Poor’s, Moody’s, and Fitch. Investors use these ratings to gauge the risk of lending to or investing in a particular borrower.

Example

Moody’s assigns a credit rating to a government bond, helping investors assess the likelihood that the government will meet its debt obligations.

Key points

• A credit rating agency evaluates the creditworthiness of borrowers and assigns credit ratings.

• Major agencies include Standard & Poor’s, Moody’s, and Fitch.

• Investors use these ratings to assess the risk of lending or investing in bonds and other debt instruments.

Quick Answers to Curious Questions

They provide investors with assessments of a borrower’s creditworthiness, helping gauge the risk of investing in bonds and other debt instruments.

The most prominent credit rating agencies are Standard & Poor’s (S&P), Moody’s, and Fitch.

Borrowers with higher credit ratings typically enjoy lower borrowing costs due to being considered less risky by investors and lenders.

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