Credit Rating Agency
A credit rating agency is an organization that assigns credit ratings to entities such as countries, companies or debt issuers. Credit ratings are typically used by investors and lenders to measure the likelihood of repayment on loans. The ratings provided by a credit rating agency provide information about the borrower’s ability and willingness to repay a loan in full and on time.
The agencies generally use standardized models which assess factors such as financial strength, management quality, profitability prospects, leverage levels etc., in order to assign their ratings – usually expressed in letter form with A+ being the highest possible score indicating strong capacity for repayment while D indicates very weak capacity for repayment (lower than B-). These letters can be combined with numbers or symbols when necessary (e.g., AA-, BBB+, CCC) providing more granularity within each category/rating level. Ratings often take into account both quantitative measures like balance sheet ratios but also qualitative ones based upon subjective assessments made by analysts at the agency who review publicly available documents like regulatory filings from companies along with other industry sources of data before assigning scores accordingly.
It should be noted that there have been several instances where inaccurate predictions were made due to conflicts of interest between certain agencies and their clients leading many governments around the world introducing regulations limiting how much influence these agencies may have over markets — this has become especially important since 2008 following numerous cases involving mortgage backed securities issued during that period whose high risk nature was not accurately reflected in their assigned rating resulting them becoming illiquid after defaulting on payments..
