Credit ratings provide a useful measure for comparing fixed-income securities, such as bonds, bills and notes. Most companies are issued a rating based on their financial strength, future prospects and past history. Companies that have manageable levels of debt, good earnings potential and a good debt-paying records will have good credit ratings.

Investment grade refers to the quality of a company's credit. In order to be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody's. Anything below this 'BBB' rating is considered non-investment grade. If the company or bond is rated 'BB' or lower it is known as junk grade, in which case the probability that the company will repay its issued debt is deemed to be speculative.

Any time that you purchase or sell bonds, bills or notes, they will have an associated credit rating. This rating changes over time as the company's strength and debt load changes. If a company takes on more debt than it can handle or if its earnings outlook weakens, the company's rating will be lowered. If it reduces its debt or finds a way to increase potential earnings, the company's rating will usually increase.

To read more on this topic, see What Is A Corporate Credit Rating, Junk Bonds: Everything You Need To Know and High Yield, Or Just High Risk?

  1. Which securities are considered investment grade?

    Learn which securities are considered investment grade by credit rating agencies such as Standard & Poors and Moody's and ... Read Answer >>
  2. Where can I find information about corporate bond issues?

    Learn information about corporate bond investments, including where investors can access information about new corporate ... Read Answer >>
  3. How do I compare one junk bond to another?

    Discover how to identify, select and compare junk bonds. Learn the role that risk, yield and opportunity cost play in investing ... Read Answer >>
  4. When would a corporation want to refinance its debt?

    Favorable market conditions or the strengthening of a company's credit rating may lead to the refinancing of corporate debt. ... Read Answer >>
  5. What are some examples of high yield bonds?

    Understand the nature of high-yield bonds and discover some examples of companies that become issuers of high-yield debt ... Read Answer >>
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