What is a Credit Rating Agency?

How is a Security Rated?

Credit rating agency is an independent enterprise that evaluates the financial standing of issuers of debt instrument and then assigns a rating that exhibits its assessment of the issuer’s aptitude to make the debt payments.

It is responsible for evaluating potential default risk linked with a particular bond issue or issuer. Customers, employees, business partners and potential investors put their faith upon the data and objective analysis provided by the credit rating agencies. A high rating denotes low credit risk, i.e. a high probability of receiving future payments as promised by the issuer.

Once a credit rating is assigned to an issue, the credit rating agency monitors the credit quality of the issuer and can reassign a different credit rating. Credit rating agencies also determine the overall stability and strength of a company.

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