Wednesday, June 10, 2009

CREDIT RATING

Credit rating refers to the Credit worthiness of an Individual, Corporation or even of a Country.It is calculated on the basis of credit history,present assets and liabilities.A poor credit rating indicates higher chances of defaulting.
The individual credit rating is important for the banks to estimate the repayment capacity of its borrowers and the individual credit score takes into account the total amount of credit,credit spending pattern,amount of credit used,savings pattern,debt,interest rates etc.Accordingly a three digit credit score is prepared by rating agencies like Fair Isaac Corporation.
Corporate Credit rating is important for potential investors in bonds and debt securities.It is also known as bond rating.Agencies like Moody's,Standard's & Poor's, Fitch Ratings are involved in assigning such credit ratings.Corporate credit ratings are indicated by AAA,AA,A,BBB,BB,B and so on.Any rating below BBB indicates poor credit health of the corporation.
Sovereign credit rating takes into account the investment environment of a country and it includes the political environment as well.Investment friendly government policies ensure better credit rating of the country.Presently countries like Luxemburg's,Norway,Switzerland have very high credit rating.
Apart from the already mentioned credit rating agencies Equifax,CallCredit, Experian,TransUnion are some of the credit rating giants.In India Credit Information Bureau of India Ltd is an individual credit rating agency.CRISIL,ICRA,Credit Registration Office etc engage in corporate credit ratings.
India's credit rating is presently facing growing pressure because of the widening fiscal deficit and the country's increasing dependence on foreign capital inflow.The newly elected government, which won a second five-year term last in May, is planning to borrow a record Rs.363,000 crore ($76 billion) this fiscal. This move is expected to widen the budget deficit to 5.5 percent of the gross domestic products.However due to India's positive credit history the pressure may just last for a temporary period.

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