What does Credit rating mean?

Credit rating is the assortment of credit worthiness either for corporations or individuals. This rating is based on the person’s or firm’s past borrowing and repayments, along with the extent of their liabilities and the availability of their assets. Credit rating is basically an evaluation of a person’s, debt security’s or firm’s timely repayment ability. To accurately calculate an entity’s credit rating one has to consider multiple factors. Some of these are: present financial position, likely future income and credit history.

There are companies that were created specifically for the task of collecting, storing, analyzing, summarizing, and selling such information to whoever is willing to pay for it. These firms are known as credit reporting agencies.

Credit in general is important, since consumers and companies with poor credit will find it difficult to get financing, and will probably have to pay higher dues to the risk of default.

Credit rating is also known as debt rating.