In simpler terms we can define Credit Rating of an individual or an organization as their credit worthiness.Credit rating tries to evaluate the risk factor associated with trusting that individual or organization with your money.
Credit ratings are determined by the credit rating agencies which have different methods to determine the credit rating.A higher credit rating indicates that there is less risk associated with that specific investment option.As the rating goes down the risk factor increases.
Figure shown below describes a sample Credit rating table.(This is just an example and different credit rating agencies have different scale and terminologies)
Credit Ratings are not direct recommendation to invest or not to invest in a specific investment option but they are often used as one of the selection criteria.Some of the major Credit rating agencies worldwide are Moody’s, Standard & Poor’s.In India some of the major credit rating agencies are –
For complete list of credit rating agencies in India refer to following link at SEBI website – Name and Registered address of Credit Rating Agencies
This topic has been intentionally presented in a very simple way so that even a person from non–finance domain can easily understand it.