Definition: A credit ratings agency is a company that assigns credit ratings to institutions that issue debt obligations (i.e. assets backed by receivables on loans, such as mortgage-backed securities. These institutions can be companies, cities, non-profit organizations, or national governments, and the securities they issue can be traded on a secondary market.
A credit rating measures credit worthiness, or the ability to pay back a loan. It affects the interest rate applied to loans - interest rates vary depending on the risk of the investment. A low-rated security has a high interest rate, in order to attract buyers to this high-risk investment. Conversely, a highly-rated security (carrying a AAA rating, like a municipal bond which is backed by stable government agencies) has a lower interest rate, because it is a low-risk investment. These low-risk bonds are available to a wide range of investors, whereas high-risk bonds cater to a narrow investing demographic.
Companies that issue credit scores for individuals are usually called credit bureaus and are distinct from corporate ratings agencies.
The top three credit ratings agencies in the United States are:
In the wake of recent credit-market turmoil, some niche agencies are picking up market share or at least additional visibility. Among the niche agencies are DBRS and Egan-Jones. Cash loans australia
Each rating agency has developed its own system of rating sovereign and corporate borrowers. Fitch Ratings developed a rating system in 1924 that was adopted by Standard & Poor's. Moody's grading is slightly different. Moody's sometimes argues that their ratings embed a conceptually superior approach that directly considers not only the likelihood of default but also the severity of loss in the event of default.
Moody's ratings follows a different system
FHA Streamline Mortgage What this means to you if you are currently shpniopg for an FHA streamline refinance is that you need to ask the question “are you requiring a credit score for the FHA streamline program?” and expect many lenders to say “yes” .
SInce the beginning of the credit crunch in early 2007 rating agencies have come under fire for their high ratings of mortgage backed securities (MBS) that did not reflect the financial stability of the borrowers. This has also reopened a discussion whether rating agencies, who get paid by borrowers for their rating, are not in a conflict of interest.
|Higher medium Grade||A1||A+||A+|
|Higher medium Grade||A2||A||A|
|Higher medium Grade||A3||A-||A-|
|Lower medium Grade||Baa1||BBB+||BBB+|
|Lower medium Grade||Baa2||BBB||BBB|
|Lower medium Grade||Baa3||BBB-||BBB-|
|May be in default||Ca||CC||CC|
|Income bonds - not paying interest||CI|