How credit rating agencies work?
Brief about Credit rating agency A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.
Credit rating agencies assign a value to the credit risk of different securities such as bonds and loans. For example, AAA is seen as the industry standard as the highest rating, and AAA, AA, A and BBB are widely seen as investment-quality securities. Ratings of BB or below are speculative grades which denote a higher credit risk or risk of default in the underlying security, but this often comes with a potentially higher return on an initial investment. Credit ratings agencies usually have analysts who recommend a rating, and then a committee which votes on the recommendation.
How credit rating agenc ies work
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