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 ... Read Full Answer >>
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. Credit & Loans

    How Credit Karma Compares To Experian

    When you want to check your credit score and see the report, should you go directly to Experian or do it through Credit Karma? Here's how to know.
  8. Credit & Loans

    Why Your Credit Report Errors Will Now Be Easier To Fix

    Equifax, Experian and TransUnion have reached an agreement to make changes to how they handle credit report errors and unpaid medical bills.
  9. Credit & Loans

    Understanding Credit Risk

    Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt.
  10. Credit & Loans

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center