Credit rating
A
credit rating assesses the
credit worthiness of an individual,
corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities and tell a lender or investor the ability of the subject to pay back a
loan.
A poor credit rating indicates a high risk of
defaulting on a loan, and thus leads to high
interest rates.
In countries such as the United States, individuals are assigned a
credit score by companies called
credit bureaus. In the United States, this is a 3-digit number known as the
FICO credit score. One's credit score, along with the
credit report, affects one's ability to borrow money through financial institutions such as
banks and
credit cards. In
Canada, the most common ratings are the North American Standard Account Ratings, also known as the "R" ratings, which have a range between R0 and R9. R0 refers to a new account; R1 refers to on-time payments; R9 refers to bad-debt.[
1]
The credit rating of a
corporation is a financial indicator to potential investors of
debt securities such as
bonds. These are assigned by
credit rating agencies such as
Standard & Poor's or
Fitch Ratings and have letter designations such as AAA, B, CC.
A
sovereign credit rating is the credit rating of a
sovereign entity, i.e. a country. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad.
Hong Kong,
Special Administrative Region of the
People's Republic of China credit status has been raised from a 'AA-' to an 'AA' rating on 07.27.2006, 02:38 AM by
Standard & Poor's Ratings Services. 'The new rating mirrors the positive effect on Hong Kong arising from the improved credit fundamentals' of China, S&P said. [
2]
Credit scores for individuals are assigned by
credit bureaus (US; UK:
credit reference agencies). Credit ratings for corporations and sovereign debt are assigned by
credit rating agencies.
In the United States, the main credit bureaus are
Experian,
Equifax, and
TransUnion.
A relatively new (but important) credit bureau in the US is
Innovis.
In the United Kingdom, the main credit reference agencies for individuals are Experian, Equifax, and
CallCredit.
In the Canada, the main credit bureaus for individuals are Equifax, TransUnion and Northern Credit Bureaus[
3] (source: CIBC [
4] p.14).
The largest credit rating agencies (which tend to operate worldwide) are
Moody's,
Standard and Poor's and
Fitch Ratings.
*
Credit risk*
Default (finance)*
Credit history*
Credit score*
Risk-based pricing
