Glossary
Credit rating
A letter grade from agencies such as S&P, Moody's and Fitch that estimates a borrower's ability to repay its debt.
On this page
A credit rating is an opinion, expressed as a letter grade, about how likely a borrower is to pay interest and principal on its debt in full and on time. Ratings are issued for governments, companies and individual bond issues, mainly by S&P Global Ratings, Moody's and Fitch. They matter because they shape the interest rate a borrower pays and decide which bonds many funds and institutions are allowed to own.
How the scale works
| Category | S&P and Fitch | Moody's |
|---|---|---|
| Highest quality | AAA | Aaa |
| High to upper-medium | AA, A | Aa, A |
| Lowest investment grade | BBB− | Baa3 |
| Speculative (high yield) | BB+ and below | Ba1 and below |
| In default | SD/D (S&P), RD/D (Fitch) | C (lowest) |
Plus and minus signs (S&P, Fitch) or numbers 1 to 3 (Moody's) fine-tune each grade. The line between BBB− and BB+ is the most important on the scale: below it, bonds are called high yield or junk.
Limits of ratings
Agencies are registered with the SEC as nationally recognized statistical rating organizations, but ratings are opinions, not guarantees. They can lag market prices, and the agencies were widely criticized for giving top ratings to mortgage securities that failed in 2007–2008. Most issuers pay for their own ratings, a conflict of interest that regulators oversee. Investors often watch bond yields and credit spreads alongside ratings for faster signals.