What Is Credit Rating? Pregnant Explained Lucidly

What is Credit Rating? Meaning

Credit rating is done for debt instruments such every bit debentures, fixed deposits, commercial papers, bonds, etc.

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The companionship which issues debt instruments is called an issuer or issuing company. The issuer, issues instruments to collect finance from investors.

Investor looks at the credit rating of musical instrument as well as issuer earlier investing.

1. If the credit rating is a high, investor volition invest inwards the company. That is, he volition purchase the debentures, bonds, etc. issued past times that company.
2. If the credit rating is low, investor volition non purchase the debentures, bonds, etc. of that company.

So, credit rating guides the investor spell investing.

Credit rating is an catch virtually a debt musical instrument as well as its issuer. It tells an investor, whether the debt musical instrument is security or risky. It tells whether the issuer volition live on able to pay the involvement as well as repay the nous total inwards time.

Credit rating is exclusively an opinion. It is non a recommendation. It does non inquire an investor to buy, concur or sell an instrument.

So, credit rating is an catch virtually the futurity might as well as legal obligation of the issuer to brand timely payments of nous total as well as involvement on their debt instruments.

Credit rating is done past times independent credit-rating agencies like:

1. S & P, which is based inwards USA,
2. while CRISIL, CARE as well as ICRA Ltd., which are based inwards India.

Credit rating is done past times experts afterwards examining diverse factors. The rating is expressed inwards alphabetical or alphanumeric symbols.

Following are examples of credit rating:

1. If the rating of debenture is AAA (Triple A), as well as thence it is considered to convey the highest security for the investor.
2. If the credit rating is DDD (Triple D),, as well as thence the debenture is considered to convey highest direct a opportunity for the investor.

The issuing companionship asks the credit-rating way to charge per unit of measurement its instrument. This is done earlier issuing the instrument. The way collects as well as studies data virtually the issuing company. Then it rates the instrument.

Credit rating is non permanent, as well as it is reviewed periodically.

Read articles on benefits as well as demerits of credit rating.