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Asked a question 3 years ago

What is credit rating?Why are they important?

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Credit rating is an unbiased and independent opinion as to issuer's capacity to meet its financial obligations. It shows the creditworthiness of the borrower for a debt. Credit rating agencies does assessment and evaluation for company's amd government such as Moody's, Standard and  Poor etc. Enterprise pay these credit agencies for their debt issues or for getting a rating for itself. Rating given by agencies is based on information they have of the company.  Credit rating can be provided by more than one agency. Rating process takes time as agencies have to gather the related information and then have to decide which rating they can give. There are many factors which affect credit rating such as nature of industry, project risk, market position etc. A credit rating not only determines whether or not a borrower will be approved for a loan, but it determines the interest rate at which loan will need to be repaid. Many companies depend on loans for many start-up and other expenses,not being approved a loan could spell disaster, and a high interest rate is much more difficult to pay back. A poor credit rating is a risky investment; it indicates a larger probability that the company will be unable to make its bond payments. Credit ratings are never static, in fact, they change all the time based on the newest data, and one negative debt will bring down even the best score. An enterprise with a good credit but shorter credit history is not good as the entity with same credit but the long credit history.