Credit Ratings are a good guide to the 'risk' involved in a financial security. While there has been controversy during the Global Financial Crisis about the value of these credit ratings, they are still a valuable tool to assess the 'quality' of an investment that you are looking at making.
There are three main credit rating firms. Each has their own methodology and they all use different rating systems. Therefore, when you are assessing an individual security, it is important that you understand WHO has rated the security, and WHAT the rating means.
It is also important to understand that the more letters of the same kind the higher ranking. For example a AA is higher than an A+. AAA- is higher than a BBB+.
Here are the websites for each of the main rating firms.
For a quick reference to compare the different rating systems - here is a table courtesy of Wikipedia (with all the normal disqualifiers of accuracy and completeness)
|A1||A+||A-1||A+||F1||Upper medium grade|
|Baa1||BBB+||BBB+||Lower medium grade|
|Ba1||Not prime||BB+||B||BB+||B||Non-investment grade|
|Caa3||CCC-||Default imminent with little|
prospect for recovery
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By Carey Church