credit rating is an evaluation of the credit worthiness of adebtor, especially a business (company) or a government. The evaluation is made by a credit rating agency of the debtor's ability to pay back the  debt and the likelihood of default. Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies' analysts. Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be  considered in giving a rating to a particular company or government . The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations. A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects.
Sovereign credit rating
Further information: A sovereign credit rating is the credit rating of a sovereign entity, i.e., a national government. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad. It takes political risk into accounts. The table shows the ten least-risky countries for investment as of January 2013. Ratings are further broken down into components including political risk, economic risk. Euromoney's bi-annual country  risk index monitors the political and economic stability of 185 sovereign countries. Results focus foremost on economics, specifically sovereign default risk and/or payment default risk for exporters (a.k.a. "trade credit" risk). A. M. Best defines "country risk" as the risk that country-specific factors could adversely affect an insurer's ability to meet its financial obligations.
A short-term rating is a probability factor of an individual going into default within a year. This is in contrast to long-term rating which is evaluated over a long timeframe. In the past institutional investors preferred to consider long-term ratings. Nowadays, short-term ratings are commonly  used. First, the Basel II agreement requires banks to report their one-year rose if they applied internalratings-based approach for capital requirements. Second, many institutional investors can easily manage their credit/bond portfolios with derivatives on monthly or quarterly basis. Therefore, some rating agencies simply report short-term ratings.
Corporate credit ratings
Main article: Bond credit rating The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. Credit rating is usually of a financial instrument such as a bond, rather than the whole
corporation. These are assigned by credit rating agencies such as A. M. Best, DBRS, Dun & Bradstreet, Standard & Poor's, Moody's or Fitch Ratings and have letter designations such as A, B, C. The Standard & Poor's rating scale is as follows, from excellent to poor: AAA, AA+, AA, AA-, A+, A, A, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C, D. Anything lower than a  BBB- rating is considered a speculative or junk bond. The Moody's rating system is similar in concept but the naming is a little different. It is as follows, from excellent to poor: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C. DBRS's long-term ratings scale is somewhat similar to Standard & Poor's and Fitch Ratings with the words high and low replacing the + and -. It goes as follows, from excellent to poor: AAA, AA(high), AA, AA(low), A(high), A, A(low), BBB(high), BBB, BBB(low), BB(high), BB, BB(low), B(high), B, B(low), CCC(high), CCC, CCC(low), CC(high), CC, CC(low), C(high), C, C(low) and D. The short-term ratings often maps to long-term ratings though there is room for exceptions at the high or low side of  each equivalent. A. M. Best rates from excellent to poor in the following manner: A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, D, E, F, and S. The CTRISKS rating system is as follows: CT3A, CT2A, CT1A, CT3B, CT2B, CT1B, CT3C, CT2C and CT1C. All these CTRISKS grades are mapped to one-year probability of default.
AA+ F1+ AA
Aa2 P-1 Aa3
A+ F1 A
Upper medium grade
Baa2 P-3 Baa3
BBB A-3 BBB-
BBB F3 BBB-
Lower medium grade
BB(high) Non-investment grade speculative
B3 Not prime Caa1
CCCC CCC C
Credit rating agencies
Main article: Credit rating agency The largest credit rating agencies (which tend to operate worldwide) are Moody's, Standard &  Poor's, Fitch Ratings, and DBRS. Other agencies and rating companies include (in alphabetical order): Agusto & Co. (Nigeria), A. M. Best (U.S.), Credit Rating Information and Services  Limited (Bangladesh), Dun & Bradstreet (U.S.),Egan-Jones Rating Company (U.S.), Global  Credit Ratings Co. (South Africa), ICRA Limited (India), Japan Credit Rating Agency, Ltd. (Japan),  Levin and Goldstein (Zambia), Morningstar, Inc. (U.S.), Muros Ratings (Russia, alternative rating  company), Public Sector Credit Solutions (U.S., not-for profit rating provider), Rapid Ratings  International (U.S.), Veda (Australia, previously known as Baycorp Advantage), Wikirating (Switzerland, alternative rating organization).
DEFINITION OF CREDIT RATING:
Definition of 'Credit Rating'
An assessment of the credit worthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money – an individual, corporation, state or provincial authority, or sovereign government. Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor’s or Moody’s. These rating agencies are paid by the entity that is seeking a credit rating for itself or for one of its debt issues. For individuals, credit ratings are derived from the credit history maintained by credit-reporting agencies such as Equifax, Experian and TransUnion.
Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. Definition: Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. It is a rating given to a particular entity based on the credentials and the extent to which the financial statements of the entity are sound, in terms of borrowing and lending that has been done in the past. Description: Usually, is in the form of a detailed report based on the financial history of borrowing or lending and credit worthiness of the entity or the person obtained from the statements of its assets and liabilities with an aim to determine their ability to meet the debt obligations. It helps in assessment of the solvency of the particular entity. These ratings based on detailed analysis are published by various credit rating agencies like Standard & Poor's, Moody's Investors Service, and ICRA, to name a few.
PERFORMANCE & CREDIT RATING SCHEME Need of a Performance and Credit Rating Mechanism for SSIs (now Micro and Small Enterprises) was highlighted in Union Budget’04-05. A scheme for SSIs (now Micro and Small Enterprises) has been formulated in consultation with Indian Banks’ Association(IBA) and Rating Agencies. NSIC has been appointed the nodal agency for implementation of this scheme through empanelled agencies. Benefits of Performance and Credit Rating
An independent, trusted third party opinion on capabilities and credit-worthiness of SSIs Availability of credit at attractive interest Recognition in global trade Prompt sanctions of Credit from Banks and Financial Institutions Subsidized rating fee structure for SSIs Facilitate vendors/buyers in capability and capacity assessment of SSIs Enable SSIs to ascertain the strengths and weaknesses of their existing operations and take corrective measures.
Benefits to Banks and Financial Institutions Availability of an independent evaluation of the strength and weaknesses of an SSI unit seeking credit and thereby enabling banks and financial institutions manage their credit risk Salient Features
A combination of credit and performance factors including operations, finance, business and management risk Uniform Rating Scale for all empanelled rating agencies. SSIs have the liberty to choose among the empanelled Rating Agencies. Turn-Over based Fee structure Partial Reimbursement of Rating Fee through NSIC
Empanelled Agencies (Click on the names for contact details and rating fee)
CARE CRISIL India Ratings(Earlier known as Fitch Ratings) ICRA ONICRA
SMERA Dun & Bradstreet(D&B) (Empanelment of D&B under this scheme was valid upto 31.03.2009. Thereafter rating is being done by SMERA as "NSIC-D&B-SMERA Rating") BRICKWORK RATINGS (BWR)
Performance and Credit Rating Fee Please contact the respective rating agency Reimbursement of Performance and Rating Fee
Turn Over of SSI Reimbursement of Fee through NSIC
Upto Rs 50 Lacs Above Rs 50 to 200 lacs More than Rs 200 lacs
75% of the fee or Rs 25000/- (Whichever is less) 75% of the fee or Rs 30000/- (Whichever is less) 75% of the fee or Rs 40000/- (Whichever is less)
CREDIT RATING SCALE:
Rating scale for Long-Term Instruments CRISIL AAA (Highest Safety) Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk. Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations. Instruments with this rating are considered to have very high risk of default regarding timely servicing of financial obligations. Instruments with this rating are in default or are expected to be in default soon.
CRISIL AA (High Safety) CRISIL A (Adequate Safety)
CRISIL BBB (Moderate Safety)
CRISIL BB (Moderate Risk) CRISIL B (High Risk) CRISIL C (Very High Risk) CRISIL D Default
Rating Scale for Short-Term Instruments CRISIL A1 Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk. CRISIL A2 Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligations. Such instruments carry low credit risk. CRISIL A3 Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligations. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories. CRISIL A4 Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligations. Such instruments carry very high credit risk and are susceptible to default. CRISIL D Instruments with this rating are in default or expected to be in default on maturity.
Rating scale for Long Term Structured Finance Instruments CRISIL AAA(SO) (Highest Safety) Instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk. Instruments with this rating are considered to have adequate degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk. Instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk. Instruments with this rating are considered to have moderate risk of default regarding timely servicing of financial obligations. Instruments with this rating are considered to have high risk of default regarding timely servicing of financial obligations. Instruments with this rating are considered to have very high likelihood of default regarding timely payment of financial obligations. Instruments with this rating are in default or are expected to be in default soon.
Rating Scale for Short Term Structured Finance Instruments CRISIL A1(SO) Instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligation. Such instruments carry the lowest credit risk. CRISIL A2(SO) Instruments with this rating are considered to have strong degree of safety regarding timely payment of financial obligation. Such instruments carry low credit risk. CRISIL A3(SO) Instruments with this rating are considered to have moderate degree of safety regarding timely payment of financial obligation. Such instruments carry higher credit risk as compared to instruments rated in the two higher categories. CRISIL A4(SO) Instruments with this rating are considered to have minimal degree of safety regarding timely payment of financial obligation. Such instruments carry very high credit risk and are susceptible to default. CRISIL D(SO) Instruments with this rating are in default or expected to be in default on maturity.
Rating Scale For Fixed Deposits FAAA ("F Triple A") Highest Safety FAA ("F Double A") High Safety FA Adequate Safety This rating indicates that the degree of safety regarding timely payment of interest and principal is very strong. This rating indicates that the degree of safety regarding timely payment of interest and principal is strong. However, the relative degree of safety is not as high as for fixed deposits with 'FAAA' ratings. This rating indicates that the degree of safety regarding timely payment of interest and principal is satisfactory. Changes in circumstances can affect such issues more than those in the higher rated categories. FB Inadequate Safety This rating indicates inadequate safety of timely payment of interest and principal. Such issues are less susceptible to default than fixed deposits rated below this category, but the uncertainties that the issuer faces could lead to inadequate capacity to make timely interest and principal payments. FC High Risk This rating indicates that the degree of safety regarding timely payment of interest and principal is doubtful. Such issues have factors present that make them vulnerable to default; adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. FD Default NM Not Meaningful This rating indicates that the fixed deposits are either in default or are expected to be in default upon maturity. Instruments rated 'NM' have factors present in them, which render the outstanding rating meaningless. These include reorganisation or liquidation of the issuer, and the obligation being under dispute in a court of law or before a statutory authority.
Corporate Credit Rating Scale: CCR AAA ("CCR Triple A") CCR AA ("CCR Double A") CCR A A 'CCR AAA' rating indicates Highest degree of strength with regard to honoring debt obligations. A 'CCR AA' rating indicates High degree of strength with regard to honoring debt obligations. A 'CCR A' rating indicates Adequate degree of strength with regard to honoring debt obligations. A 'CCR BBB' rating indicates Moderate degree of strength with regard to honoring debt obligations. A 'CCR BB' rating indicates Inadequate degree of strength with regard to honoring debt obligations. A 'CCR B' rating indicates High Risk and greater susceptibility with regard to honoring debt obligations. A 'CCR C' rating indicates Substantial Risk with regard to honoring debt obligations. A 'CCR D' rating indicates that the entity is in Default of some or all of its debt obligations. A 'CCR SD' rating indicates that the entity has Selectively Defaulted on a specific CCR SD issue or class of debt obligations, but will continue to meet its payment obligations on other issues or classes of debt obligations.
Crisil rating process:
CRISIL Rating Process
CRISIL's ratings process is designed to ensure that all ratings are based on the highest standards of independence and analytical rigour. From the initial meeting with the management to the assignment of the rating, the rating process normally takes three to four weeks. However, CRISIL has sometimes arrived at rating decisions in shorter timeframes, to meet urgent requirements. The process of rating starts with a rating request from the issuer, and the signing of a rating agreement. CRISIL employs a multi-layered, decision-making process in assigning a rating.
What Is A Credit Rating? When you use credit, you are borrowing money that you promise to pay back within a specified period of time. A credit score is a statistical method to determine the likelihood of an individual paying back the money he or she has borrowed. The credit bureaus that issue these scores have different evaluation systems, each based on different factors. Some may take into consideration only the information contained in your credit report, which we look at below. The primary factors used to calculate an individual's credit score are his or her credit payment history, current debts, time length of credit history, credit type mix and frequency of applications for new credit. Because the scoring systems are based on different criteria which are weighted differently, the three major credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may issue differing scores for an individual, even though the scores are based on the same credit report information. You may hear the term FICO score in reference to your credit score - the terms are essentially synonymous. FICO is an acronym for the Fair Isaacs Corporation, the creator of the software used to calculate credit scores. Scores range between 350 (extremely high risk) and 850 (extremely low risk). Here is a breakdown of the distribution of scores for the American population in 2003:
What About A Credit Rating? In addition to using credit (FICO) scores, most countries (including the U.S. and Canada) use a scale of 0-9 to rate your personal credit. On this scale, each number is preceded by one of two letters: "I" signifies installment credit (like home or auto financing), and "R" stands for revolving credit (such as acredit card). SEE: How Credit Cards Affect Your Credit Rating Each creditor will issue its own rating for individuals. For example, you may have an R1 rating with Visa (the highest level of credit rating), but you might simultaneously have
an R5 from MasterCard if you've neglected to pay your MasterCard bill for many months. Although the "R" and "I" systems are still in use, the prevailing trend is to move away from this multiple rating scale toward the single digit FICO score. Nevertheless, here is how the scale breaks down:
You are new to the credit world, and you have R0 or I0 an insufficient credit history for making an accurate judgment of your future risk. R1 or I1 You pay your credit back in 1 month. R2 or I2 You pay your credit back in 2 months. R3 or I3 You pay your credit back in 3 months. R4 or I4 You pay your credit back in 4 months. R5 or I5 R7 or I7 R8 or I8 R9 or I9 You have not repaid in four months, but you are not a "9" yet. Your debt payments are made under consolidation. Debt was cleared by selling the item (repossession). You officially have bad debt (default), which usually means it is uncollectible.
What Makes Up Your Credit Score? When you borrow money, your lender sends information to a credit bureau which details, in the form of a credit report, how well you handled your debt. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit. Although all these factors are included in credit score calculations, they are not given equal weighting. Here is how the weighting breaks down: Need an Online Broker?
As you can see by the pie graph, your credit rating is most affected by your historical propensity for paying off your debt. Although there are many ways you can improve your credit score, the factor that can boost your credit rating the most is having a past that shows you pay off your debts fairly quickly. Additionally, maintaining low levels of indebtedness (or not keeping huge balances on your credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will all help your credit score. Although we would love to explain the exact formula for calculating the credit score, the Federal Trade Commission has a secretive approach to this formula. Why Credit Rating Is Important When you apply for a credit card, mortgage or even a phone hookup, your credit rating is checked. Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them. According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders will not shun you (unless it is utterly awful); instead, they'll lend you money at a higher rate than the one paid by someone with a better credit score. The table below shows how individuals with varying credit scores will pay dramatically different interest rates on similar mortgage amounts - the difference in interest, in turn, has a large impact on the monthly payments (which pay off both interest and principal). As you can see, your credit score can affect your mortgage in many ways:
Credit Is a Fragile Thing Being aware of your credit and your credit score is very important, especially since you can harm your credit without even being aware of it. Here's a true story of what can happen: Paul applied for a travel reward miles card, but never received any response from the credit card company. Since it was a high-limit travel card, Paul just assumed that he'd been declined and never thought about it again. More than a year later, Paul goes to the bank to inquire about a mortgage. The people at the bank pull up Paul's credit report and find a bad debt from the credit card company. According to the credit report, the company tried to collect for a year but recently wrote it off as a bad debt, reporting it as an R9, the worst score you can get. Of course, all this is news to Paul. Well, it turns out there was a clerical error, and Paul's apartment suite number was missing from the address the credit card company had on file. Paul had been approved for the card but never actually received it, and any subsequent correspondence didn't get through either. So the credit card company still charged Paul the annual fee, which he didn't pay, because he didn't know the debt existed. The annual fee collected interest for a year until the credit card company wrote it off. In the end, after jumping though several fiery hoops, Paul was able to get the problem rectified, and the card company admitted fault
and notified the credit-reporting agency. The point is, even though it was a small balance due (about $150), the administration error almost got in the way of Paul getting a mortgage. Nowadays, since all data goes through computers, incorrect information can easily get onto your credit report. Tips to Improve or Maintain a High Credit Score: Make loan payments on time and for the correct amount. Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score. Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible. Be aware of what type of credit you have. Credit from financing companies can negatively affect your score. Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly. Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of accounts, or prescreens), but most are. Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history. The Bottom Line The importance of credit today is significant; overlooking this fact can be very detrimental to your financial health. Being aware of how your credit score is calculated is essential. By following the tips we have laid out for you, you should be able to either maintain or improve your credit score.
THE CREDIT SCORE SCAM The Credit Score Scam
Most people think having a good credit score is necessary. This is the most successful marketing lie that exists in the financial industry. It only matters if you borrow money. Unfortunatey landlords, insurance companies, and various other companies have started using it as a guide. It is the lazy mans evaluation of a person's creditworthiness. Unfortunately, since there are so many errors on credit reports it has become an unreliable source of evaluating creditworthiness. Getting these errors corrected is a formidable task. While you are correcting them, more errors appear. It is a losing battle. Despite what most people think, the credit bureaus don't work for consumers, they work for creditors. They will not accept any information from a consumer without undisputable proof, while the creditor just simply needs to make a claim and it is slapped onto your report unverified. What's more, the scores themselves have now become a way to rip off consumers. There is the FICO Score (considered the standard), and then each credit bureau has their own proprietary score. They have started giving away "free" credit reports, which are little more than bait for subscriptions. The consumer thinks they are purchasing accurate information, when each bureau is likely to have vastly different information, and the score they give looks higher than the actual FICO score. There is a lawsuit in progress attempting to address this. You even have to be careful about who you get your financial advice from. Suzy Orman is in bed with Fair Isaac and touts the value of a good credit score because she makes money when she does. However, Fair Isaac has recently settled a class action lawsuit against them involving Suzy Orman and her "FICO kit" for claims that they violated the federal Credit Repair Organizations Act and various state laws. They got away with providing "free" 3 to 6 month subscriptions. Ironic, since the FICO score marketing is all about improving your score, yet the scores continue to be fraught with countless errors, helping them continue to sell credit repair for their own mistakes. The truth is that if you don't borrow money, the FICO score formula gives you a poor rating. In actuality, you are the lowest risk. Lenders who pay attention to what they are underwriting will see this. The score means littlein the end with lenders who pay attention who they are lending to. As for the others, the landlords, the insurance companies, and employers. You can simply point out the errors and usually get past this screening. If you don't borrow money and tell them this is your policy, they should think highly of you regardless of the zero FICO score.
S & p scam:
Ratings agency in the spotlight
Unlike past financial crisis cases — which have mostly targeted loan originators and a handful of Wall Street banks — the S&P suit represents the first federal enforcement action against one of the three major credit ratings agencies. S&P, Fitch Ratings, and Moody’s Corp. are typically paid by the same financial firms that issue the securities they’re assessing. A 2011 Senate report (pdf) on the crisis called that model ―a conflict of interest problem that results in a race to the bottom – with every credit rating agency competing to produce credit ratings to please its paying clients.‖ The Justice Department echoed that charge in its complaint. ―As S&P knew, contrary to its representations to the public, S&P’s desire for increased revenue and market share in the RMBS and CDO ratings markets, and its resulting desire to maintain and enhance its relationships with issuers that drove its ratings business, improperly influenced S&P to downplay and disregard the true extent of the credit risks,‖ according to the complaint. In a statement, S&P called the case ―meritless.‖ ―Although we deeply regret that these 2007 CDO ratings did not perform as expected, 20/20 hindsight is no basis to take legal action against the good-faith opinions of professionals,‖ according to S&P. ―The fact is that S&P’s ratings were based on the same subprime mortgage data available to the rest of the market — including U.S. Government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained.‖ While the Senate investigation criticized all three major ratings firms for stirring an ―economic earthquake,‖ Justice Department officials would not comment Tuesday on whether they plan to bring charges against Moody’s or Fitch.