A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts. Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations.

Credit ratings are often confused with credit scores. Credit scores are the output of mathematical algorithms that assign numerical values to information in an individual's credit report. The credit report contains information regarding the financial history and current assets and liabilities of an individual. A bank or credit card company will use the credit score to estimate the probability that the individual will pay back loan or will pay back charges on a credit card. However, in recent years, credit scores have also been used to adjust insurance premiums, determine employment eligibility, as a factor considered in obtaining security clearances and establish the amount of a utility or leasing deposit.

A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects. A poor credit score indicates that in the past, other individuals with similar credit reports defaulted on loans at a high rate. The credit score does not take into account future prospects or changed circumstances. For example, if an individual received a credit score of 400 on Monday because he had a history of defaults, and then won the lottery on Tuesday, his credit score would remain 400 on Tuesday because his credit report does not take into account his improved future prospects.

Verb

credit (third-person singular simple present credits, present participle crediting, simple past and past participle credited)

1. (transitive) To believe.

   Someone said there had been over 100,000 people there, but I can't credit that.

2. (transitive, accounting) To add to an account (confer debit.)

   Credit accounts receivable with the amount of the invoice.

   For the payroll period credit employees' tips to their wages paid account and debit their minimum wage payable account.

   The full amount of the purchase has been credited to your account.

3. (transitive) To acknowledge a contribution.

   I credit the town council with restoring the shopping district.

   Credit the point guard with another assist.

Related terms

• credible
• credibility
• creditable
• creditor
• credence
• credential
• credo
• creed

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• Counseling and Repair (65)
• Credit Reports (3)
• Debit and Credit Cards (28)
• Laws and Regulations (7)

See also:

• Business: Financial Services: Financial Planning: Debt Consolidation (149)
• Society: Crime: Theft: Identity Theft (74)

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• Consumer Handbook to Credit Protection Laws
  federalreserve.gov
  Guide to shopping, applying for, and using credit, maintaining a good credit record, and complaining about an unfair deal, and discriminatory lending practices, from the Federal Reserve Board.
• CBM Credit Education Foundation
  cbmfoundation.org
  Non-profit organization assists schools, businesses and civic groups to promote financial literacy and the wise use of consumer credit. Includes educational materials and links to related sites.
• Creditboards
  creditboards.com
  Online discussion forums covering several aspects of consumer credit.