Definition of Credit Rating
Credit rating is a score that some specialized credit rating agencies allot to a borrower regarding the trustworthiness and reliability when the time comes to repay the amount borrowed. In finance, the term credit rating is vastly used in corporate bonds trading. Every company issuing corporate bonds is given a credit rating such as AAA, AAB, ABB, BBB, BBC, etc, based on the company’s historical behavior of repaying the borrowed amount.
The company has a history of delaying or not repaying the borrowed amount has a high credit default risk and thus as a poor credit rating. Whereas, a company, with a good history of loan repayment, is given a good credit rating by credit rating agencies. Two most famous credit rating agencies are Standards & Poors and Moody’s.