A credit rating summarises default risk for a company, a bank, or a government bond issue. Agencies and internal bank models assign letter grades or scores based on finances, industry outlook, and payment history. Better ratings usually mean cheaper borrowing; worse ratings mean higher interest costs or closed doors.
Key takeaways
- Ratings are opinions, not guarantees that a borrower will pay.
- A downgrade can raise funding costs and pressure the share price.
- Sovereign ratings influence how foreign investors view a whole country’s debt.
- Personal credit scores follow a different process from corporate bond ratings.