Corporate Credit Rating

AAA

DEFINITION of 'Corporate Credit Rating'

The opinion of an independent agency regarding the likelihood that a corporation will fully meet its financial obligations as they come due. A company’s corporate credit rating indicates its ability to pay its creditors and gives investors an idea of how well or poorly the company’s securities are likely to perform. Corporate credit ratings are an opinion, not fact.

INVESTOPEDIA EXPLAINS 'Corporate Credit Rating'

Corporate credit ratings are not a guarantee that a company will repay its obligations, but the overall, long-term track record of these ratings is strong. Standard & Poor’s says “the average five-year default rate for investment-grade corporate issuers was 1.07%, compared with 16.03% for speculative-grade companies.”

S&P, Moody’s and Fitch are the three main providers of corporate credit ratings. Each agency has its own ratings system that doesn’t necessarily equate to another company’s ratings scale, but they are all similar. Fitch and Standard & Poor’s use AAA for the highest credit quality, AA for the next best, followed by A, then BBB for good credit. Everything below BBB is considered speculative or worse, down to a D rating, which indicates default.

Since the ratings are opinions, ratings of the same company can differ among rating agencies. Investment research firm Morningstar also provides corporate credit ratings that range from AAA for extremely low default risk to D for payment default. 

During the financial crisis of 2008, companies that had received glowing ratings from various credit rating agencies were downgraded to junk levels, calling into question the reliability of the ratings themselves.

RELATED TERMS
  1. Japan Credit Rating Agency - JCR

    One of the key credit rating agencies in Japan. JCR provides ...
  2. Sovereign Credit Rating

    The credit rating of a country or sovereign entity. Sovereign ...
  3. FAKO Score

    A derogatory term for a credit score that is not one of the FICO ...
  4. Credit Repair Organizations Act ...

    A federal law passed in 1996 that requires companies offering ...
  5. Adverse Credit History

    A track record of poor repayment history on one or more loans ...
  6. Charge-Off Rate (Credit Card)

    The percentage of consumers whose unpaid balances credit card ...
RELATED FAQS
  1. What are the benefits of credit ratings?

    Credit ratings are an important tool for borrowers to gain access to loans and debt. Good credit ratings allow borrowers ...
Related Articles
  1. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  2. Credit & Loans

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  3. Insurance

    Should Your Credit Rating Scare You?

    Take the mystery out of credit scores by learning the most important ways it can impact your life.
  4. Credit & Loans

    Countries That Still Have The Golden AAA Credit Rating

    The U.S., Italy, Greece and others have lost the coveted AAA rating, but some countries have managed to hold onto it.
  5. Personal Finance

    How The Credit Rating Downgrade Affects the U.S. Economy

    With the S&P downgrade, investors liquidate and global perception is that the U.S. is in financial trouble, but there are still those who remain cautiously optimistic.
  6. Home & Auto

    A Brief History Of Credit Rating Agencies

    Credit rating agencies have a long history in this country. Learn about what they do and how were they developed.
  7. Economics

    Does A Junk Rating Reflect Russia's Fundamentals?

    Moody’s, like other credit rating agencies, has downgraded Russia’s sovereign debt rating to non-investment grade, but does this reflect Russia's economy?
  8. Investing

    What does Investment Grade Mean?

    Investment grade is a term used to describe a favorable rating for corporate and municipal bonds.
  9. Investing Basics

    How a Stock Buyback Works: MasterCard

    Stock buyback refers to publicly traded companies buying back their shares from shareholders. This reduces the amount of outstanding shares in the market and typically, based on simple market ...
  10. Credit & Loans

    5 Top Credit Karma Tools To Keep Your Credit High

    As if the free, no-strings credit checkup weren't enough, this site also gives you personalized feedback to make you a better money manager.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center