Credit Rating

Credit rating is a third party assessment of the credit worthiness or credit risk of an individual, a corporation or a sovereign government.

For a loan-seeking individual or company, its credit rating denotes whether it has the capacity to pay back the loan. Therefore, credit rating impacts the decision of approval of a loan along with the rate of interest on it. Credit rating also plays an important role in determining whether or not to purchase bonds. Poor credit rating bonds are a risky investment as it indicates a greater probability that the company will not pay off its bonds.

Credit rating agencies such as Standard & Poor’s, Moody’s or Fitch do the credit assessment for companies and governments; while agencies like Equifax (EFX), Experian and TransUnion do the same for individuals.