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. Invoice Financing

    A way for businesses to borrow money based on amounts due from ...
  4. Jamming

    A scam perpetrated by bogus credit repair firms that involves ...
  5. Trade Line

    Credit account records that are provided to credit reporting ...
  6. Furnisher

    A company that provides information about a consumer, including ...
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 >>
  2. How can I use the funds from operations to total debt ratio to assess risk?

    The funds from operations (FFO) to total debt ratio is used in fundamental analysis to determine a company's financial risk. ... Read Full Answer >>
  3. How stable are municipal bonds?

    Stability is relative in the municipal bond market. Municipal bonds tend to be safer than many other types of investments, ... Read Full Answer >>
  4. Where can I find information about corporate bond issues?

    Information about new and existing corporate bond issues is published regularly in financial newspapers, such as The Wall ... Read Full Answer >>
  5. Why are high yield bonds typically lower rated bonds?

    The term "high-yield bond" is a bit of a misnomer. It is not the case that high-yield bonds tend to be lower-rated; instead, ... Read Full Answer >>
  6. How do I evaluate a debt security?

    Debt securities are a form of loan from an investor to the government or a business. Among the many different types of debt ... 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. Professionals

    Are Stock Buybacks Always Good for Shareholders?

    Stock buyback programs aren't always done with the interests of shareholders in mind. It's important to try to understand the motivation behind such moves.
  8. Investing Basics

    Explaining Bond Ratings

    A bond rating is a grade given to a bond to indicate its creditworthiness.
  9. Credit & Loans

    Free Credit Score: How Free Is It Really?

    Be careful of websites making bogus offers of "free" credit scores. If a site asks for credit card information, you'll most likely end up being charged.
  10. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!