What is a Credit Rating?

Credit rating is a method of determining the creditworthiness of a company’s or government’s bonds.

Creditworthiness demonstrates a capacity to repay debts.

In return for capital, companies or governments issue bonds/debt papers to the general public. The bond holder (the corporation or the government) must refund the money to the public/investors who bought the bonds as they mature.

Credit scores are issued to individual bonds. A bond issuer’s financial power, or willingness to pay the principal and interest on schedule, is factored into the ranking.

Although the overall scale is consistent among rating agencies, the labels can vary.