1. Prof. Mohasin A. Tamboli
PIRENS Technical Campus, Loni
Email: mohasinat@gmail.com
CREDIT RATING
1 Prof. M.A.Tamboli
2. CREDIT RATING
An assessment of the credit worthiness of a
borrower in general terms or with respect to a
particular debt or financial obligation.
Credit assessment and evaluation for
companies and governments is generally done
by a credit rating agency such as Standard &
Poor’s, Moody’s, CRISIL, ICRA etc.
These rating agencies are paid by the entity
that is seeking a credit rating for itself or for one
of its debt issues.2 Prof. M.A.Tamboli
3. 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.
Prof. M.A.Tamboli3
4. HISTORY OF CREDIT RATINGS
Moody's was the first agency to issue publicly
available credit ratings for bonds, in 1909, and other
agencies followed suit in the decades after. These
ratings didn't have a profound effect on the market until
1936, when a new rule was passed that prohibited
banks from investing in speculative bonds, or those with
low credit ratings, to avoid the risk. This practice was
quickly adopted by other companies and financial
institutions, and relying on credit ratings became
the norm.
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5. WHY CREDIT RATINGS ARE
IMPORTANT
The rating agencies must take a balanced and
objective view of the borrower’s financial
situation and capacity to service/repay the debt.
A credit rating not only determines whether or
not a borrower will be approved for a loan, but
also the interest rate at which the loan will need
to be repaid.
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6. WHY CREDIT RATINGS ARE
IMPORTANT
Credit ratings also play a large role in a
potential buyer's determining whether or not
to purchase bonds.
A poor credit rating is a risky investment; it
indicates a larger probability that the
company will not pay off its bonds.
Prof. M.A.Tamboli6
7. WHY CREDIT RATINGS ARE
IMPORTANT
It is important for a borrower to remain diligent
in maintaining a high credit rating. Credit
ratings are never static, in fact, they change all
the time based on the newest data, and one
negative debt will bring down even the best
score.
Debtors want to know a borrower can maintain
good credit consistently over time.
Prof. M.A.Tamboli7
8. WHY CREDIT RATINGS ARE
IMPORTANT
Credit rating changes can have a significant
impact on financial markets. A prime example
of this effect is the adverse market reaction to
the credit rating downgrade of the U.S. federal
government by Standard & Poor’s on August 5,
2011. Global equity markets plunged for weeks
following the downgrade.
Prof. M.A.Tamboli8
9. FACTORS AFFECTING CREDIT
RATINGS AND CREDIT SCORES
There are a few factors credit agencies take
into consideration when assigning a credit
rating for an organization.
1. the agency considers the entity's past history
of borrowing and paying off debts. Any missed
payments or defaults on loans negatively
impact the rating.
Prof. M.A.Tamboli9
10. FACTORS AFFECTING CREDIT
RATINGS AND CREDIT SCORES
2. The agency also looks at the entity's future
economic potential. If the economic future
looks bright, the credit rating tends to be
higher.
3. If the borrower does not have a positive
economic outlook, the credit rating will fall.
4. A high credit score indicates a stronger credit
profile and will generally result in lower interest
rates charged by lenders.
Prof. M.A.Tamboli10
11. Tips to Improve or Maintain a High
Credit Score
Make loan payments on time.
Avoid overextending your credit.
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.
Prof. M.A.Tamboli11
12. Tips to Improve or Maintain a High
Credit Score
Be aware of what type of credit you have. Credit
from financing companies can negatively affect
your score.
Limit your number of credit applications.
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.
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13. Rating scale for Long-Term
Instruments(CRISIL)
Rate / Scale Significance
AAA 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.
AA 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.
A adequate degree of safety regarding timely servicing of
financial obligations. Such instruments carry low credit risk.
BBB moderate degree of safety regarding timely servicing of
financial obligations. Such instruments carry moderate
credit risk.
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14. Rating scale for Long-Term
Instruments(CRISIL)
Rate / Scale Significance
BB moderate risk of default regarding timely servicing of
financial obligations.
B high risk of default regarding timely servicing of financial
obligations.
C have very high risk of default regarding timely servicing of
financial obligations.
D Instruments with this rating are in default or are expected to
be in default soon.
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15. Rating Scale for Short-Term
Instruments
Rate /
Scale
Significance
A1 Carry lowest credit risk.
A2 Carry low credit risk.
A3 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.
A4 Carry very high credit risk and are susceptible to default.
D Expected to be in default on maturity.
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CRISIL may apply '+' (plus) or '-' (minus) modifiers for ratings
