Credit Rating: An Evaluation of Credit Ratings and Their Importance in Bond Investments

Abstract

Credit ratings aredetermined by credit ratings agencies. The credit rating represents the creditrating agency's evaluation of qualitative and quantitative information for acompany or government; including non-public information obtained by the creditrating agencies' analysts. Credit ratings are notbased on mathematical formulas] Instead, credit rating agencies usetheir judgment and experience in determining what public and privateinformation should be considered in giving a rating to a particular company orgovernment. The credit rating is used by individuals and entitiesthat purchase the bonds issued by companies and governments to determine thelikelihood that the government will pay its bond obligations.