Credit rating
A credit rating summarises an agency's assessment of the likelihood of credit loss or default under its stated methodology. Ratings can apply to an issuer or a particular debt instrument and may differ by seniority, collateral, currency or horizon. They influence access to finance and required yields but are opinions rather than guarantees, and can change when circumstances or the agency's assessment changes. Users should consider model limitations, information quality and the specific meaning of the rating scale.
Worked example
A company seeks a bond rating. The agency reviews its cash flows, leverage and business risk, and the bond's priority and security. A lower rating can increase the yield investors demand, though market conditions also affect the final spread.
Common mistake
Treating a rating as a promise that a bond will not default or assuming all obligations of one company have the same rating.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Direct | September 2026–June 2027 |
| ACCA | FM | Supporting | September 2026–June 2027 |
