A credit rating evaluates the credit worthiness of a debtor, especially a business (company) or a government. It is an evaluation made by a credit rating agency of the debtor's ability to pay back the debt and the likelihood of default.
Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts.
Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations.
A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects.
Read more about Credit Rating: Sovereign Credit Ratings, Short-term Rating, Corporate Credit Ratings, Credit Rating Agencies
Famous quotes containing the word credit:
“The world is a puzzling place today. All these banks sending us credit cards, with our names on them. Well, we didn’t order any credit cards! We don’t spend what we don’t have. So we just cut them in half and throw them out, just as soon as we open them in the mail. Imagine a bank sending credit cards to two ladies over a hundred years old! What are those folks thinking?”
—Sarah Louise Delany (b. 1889)