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Credit Rating Agencies Defined
A credit rating agency is a company that rates the ability of a person or company to pay back a loan. The rating given by a credit rating agency is important because it affects the perceived risk element incorporated into interest rates that are applied to loans.
Interest rates are not the same for everyone, but instead are based on risk based pricing, a form of price discrimination based on the different expected costs of different borrowers, as set out in their credit rating. Worldwide there exist more than 100 rating agencies.
The lowering of a credit score or grade by a corporate creidt rating agencie can create a vicious cycle, as not only interest rates for that company would go up, but many contracts it might have with financial institutions may have creidit rating related clauses which may cause things to be repriced to less favorable terms, causing a large increase in expenses to that company, possibly causing it to become even less creditworthy. These "rating triggers" were instrumental in the collapse of Enron: since that time, major agencies have put extra effort into detecting these triggers and discouraging their use.
For investors, creditrating agncies increase the range of investment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers and lenders. This in turn increases the total supply of risk capital in the economy, leading to stronger growth. It also opens the capital markets to categories of borrower who might otherwise be shut out altogether: small governments, startup companies, hospitals and universities.
• Personal loans: great financial relief for personal needs
• How to Repair Your Personal Credit Report and Improve Your Scores
Creditrating Agencies
A.M. Best
Baycorp Advantage
Callcredit
Dun & Bradstreet
Equifax
Experian
Fitch Ratings
Innovis
Moody's
Standard & Poor's
Trans Union Canada
RusRating
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See:
• Bankruptcy
• Bonds
• Credit
Finance
• Credit
History
• Credit Rating Agencies
• Credit
Score
• Creditor
• Debt consolidation
• Business
Financing
• Business
Factoring
This article is licensed under the GNU
Free Documentation License. It uses material from the
Wikipedia
article "Credit Rating Agency".
Also see:
• Having
Trouble Getting a Loan? Ten Common Credit Mistakes
• No Credit? You Will Need a Bad Credit Loan
• A Personal Loan And Your Rights |
