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What is a credit rating agency?

Credit Rating Agency

A credit rating agency is a private company that looks at the credit worthiness of a large-scale borrower, such as a company or country. It effectively ranks the borrower on their ability to pay off their loan

Where have you heard about credit rating agencies?

You may have heard about credit rating agencies if you've watched the film 'The Big Short'. The film portrays the period before the financial collapse of 2007-8 and the part that credit rating agencies played.

After the collapse hundreds of billions of securities that had been given the credit rating agencies' highest ratings were downgraded as worthless and the whole system was called into question.

What you need to know about credit rating agencies...

Credit rating agencies give ratings such as AAA, B-,or C, for example. They give an investor a better idea of that company or country's ranking and therefore its credit worthiness..

There are three big credit rating agencies: Standard & Poor's (S&P)Moody's and Fitch Group.

  • S&P was formed in 1941 by the merger of Standard Statistics merged and Poor's Publishing and has become best know by indexes such as S&P 500
  • From 1900 Moody and Company published manuals with statistic and basic information about stocks and bonds. By 1914 the idea development into the investor's service, which provided ratings for government bond markets
  • Fitch was established in 1923 and in 1924 introduced the AAA through to D system that forms the current basis of ratings in the financial industry

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