Credit Rating stands for assessment of the financial reputation of the client, the indicator of the risk of the prospective borrower. Such a measure evaluates the individual, entity, or business, the ability to pay back the debt.
Such information is provided by the credit rating agencies. They do it for the payment on request of the entities and organizations, who give the loans, credits, etc. There are some common indications of creditworthiness. For example:
“Standard” or “Poor”, AAA and AA+ are excellent or acceptable, and past the alphabet – BBB and lower means worse.
If the rating is high, the lender considers a borrower as the one who is able to repay the debt – non-risky. The low credit rating implies that the borrower has already had problems with repaying the debt, and he is uncertain to cooperate. Thus, the credit rating influences directly on the probability of the individual or entity to receive the credit.
The credit rating should be not only high but long-standing. The borrower who has a favorable rating and a long-period credit history will have the advantage over the one with the same rating, but shorter credit history.