credit rating

Examples of credit rating in the following topics:

• Credit Ratings

  • 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.
  • A sovereign credit rating is the credit rating of a sovereign entity like a national government.
  • These are assigned by credit rating agencies such as A.

• Bond Rating System

  • The credit rating is a financial indicator assigned by credit rating agencies; bond ratings below BBB-/Baa are considered junk bonds.
  • In investment, the bond credit rating assesses the credit worthiness of a corporation's or government's debt issues.
  • It is analogous to credit ratings for individuals.The credit rating is a financial indicator to potential investors of debt securities, such as bonds.
  • Moody's assigns bond credit ratings of Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, with WR and NR as withdrawn and not rated.
  • Standard & Poor's and Fitch assign bond credit ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, and D.

• Ratings

  • Bond credit rating agencies assess and report the credit worthiness of a corporation's or government's debt issues.
  • In investment, the bond credit rating assesses the credit worthiness of a corporation's or government's debt issue.
  • The credit rating is analogous to a credit rating for individuals.
  • These are bonds that are rated below investment grade by the credit rating agencies.
  • Credit ratings are used to report on the credit worthiness of a bond issuing company or government

• The Discount Rate

  • The Fed offers three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate.
  • The discount rate charged for primary credit (the primary credit rate) is set above the usual level of short-term market interest rates.
  • (Because primary credit is the Federal Reserve's main discount window program, the Federal Reserve, at times, uses the term "discount rate" to mean the primary credit rate. ) The discount rate on secondary credit is above the rate on primary credit.
  • The discount rate for seasonal credit is an average of selected market rates.
  • Describe the Fed's primary credit, secondary credit, and seasonal credit lending programs

• International Credit Rating Agencies

  • International credit-rating agencies do not focus on risk for particular companies but assess investment risk associated with countries.
  • Two well-known credit agencies are A.M Best and Coface.
  • Table 2 shows a country's rating for 2012.
  • Coface, France's export credit underwriter, is another international credit-rating agency.
  • Table 3 shows Coface's 2012 rating of countries.

• Trends in Credit After 2008

  • The events of 2008 led to a credit crunch, also known as a credit squeeze or credit crisis.
  • A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates.
  • In such situations, the relationship between credit availability and interest rates has implicitly changed, such that either credit becomes less available at any given official interest rate, or there ceases to be a clear relationship between interest rates and credit availability (i.e., credit rationing occurs).
  • Financial institutions facing losses may then reduce the availability of credit, and increase the cost of accessing credit by raising interest rates.
  • Additionally, the Credit Cardholders' Bill of Rights includes several provisions aimed at limiting how credit card companies can charge consumers, but does not include price controls, rate caps, or fee setting.

• Credit Cards

  • High interest rates: Low introductory credit card rates are limited to a fixed term, usually between six and 12 months, after which a higher rate is charged.
  • Some credit cards often levy a rate of 20 to 30 percent after a payment is missed.
  • In other cases a fixed charge is levied without change to the interest rate.
  • This can lead to a snowball effect in which the consumer is drowned by unexpectedly high interest rates.
  • The merchant may also pay a variable charge, called an interchange rate, for each transaction.

• Credit Unions

  • Credit unions are substitutes and competitors of banks, owned by members as a financial cooperative.
  • Credit unions usually offer better rates on deposits and lower costs for loans
  • Credit unions offer access to borrowing options not always available at traditional banks
  • Credit unions increase competition (big banks tend to be oligopolies, while credit unions are intrinsically smaller in scale, thus high in quantity)
  • Credit unions are smaller, and therefore more likely to go out of business

• Credit Operations

  • Credit, in commerce and finance, is a term used to denote transactions involving the transfer of money or other property on promise of repayment, usually at a fixed future date and at a specific interest rate .
  • Organizations that offer credit to their customers frequently employ a credit manager .
  • A line of credit is any credit source extended to a business or individual by a bank or other financial institution.
  • A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc.
  • Long-term interest rate statistics for non-Euro countries plus Greece, Portugal, and Ireland.

• Depository Institutions

  • During the early 1980s, many savings institutions experienced financial crisis because of higher interest rates.
  • For example, if you borrowed $10,000 at a 5%, interest rate and loaned it out at 10%, then you earn a profit.
  • However, if you borrowed $10,000 at 10% interest rate and loaned it out at 5%, subsequently, you earn a loss.
  • Interest rates rose during the 1980s as the savings institutions paid a greater interest rate to thedepositors than the amount of these institutions earned on the mortgages. mortgages are usually 30-year loans, and savings institutions were locked into low interest rates from the 1960s.
  • Credit unions are another depository institution.