Definition for beginners
Almost everyone has ever heard of rating agencies. However, many do not know exactly what the institutions are doing behind it and are looking for an explanation. So what are rating agencies? I’m trying to give a simple definition: Rating agencies are independent institutions and assess above all the financial power of states and companies.
In other words, these agencies are basically looking at the chances of the companies and countries under review repaying their debts in the future. After examining the creditworthiness of a debtor, they then issue a so-called “rating”.
Credit rating agencies
Well-known credit rating agencies- institutions -are Moody’s, Fitch and Standard & Pool’s. And according to which system do rating agencies assess the debtors? For this letters are used (descending from A to D). A triple “AAA” is the highest grade. In this case, an agency certifies a very high creditworthiness and signals a low risk to potential lenders. A “DDD” rating is therefore the exact opposite: very bad credit and very high risk.
Why do they do that? So that an investor who wants to lend such a debtor money, can better assess whether he will possibly get his money back again. In the form of various government bonds and corporate bonds, which can be bought through stock exchanges, for example, everyone can lend money to a state or a company. In return, he receives interest.
Credit rating agencies thus in principle analyze the risk level of bonds (definition). Remember this rule: the worse the rating agency’s rating, the higher the risk of a bond. For example, if a state receives a bad rating, then it has to pay high interest rates to find investors who lend it money. If you are interested in bonds, then you should be very cautious on bonds with high interest rates. In such a case, the debtor may well be heavily in debt and you run the risk as an investor, maybe not get his money back.
One more thing: ratings can change over time, of course, as the agencies keep taking a closer look at states and companies.
Annual credit score
You can get your credit report from one of the biggest bureaus. They are Equifax, Experian and TransUnion. You can get your yearly credit report at every 12 months via annualcreditreport.com web site. If you want to get your credit scores, Fico Scores platform will be enough for you. You should not consider the annual credit report as same with Fico score, they are different areas.
Free annual credit score report
You can get your free annual credit score from annualcreditreport.com. Credit reports can affect your loan chance. So when you get report, you should take a look at your credit score. If your credit report result is really bad, you cannot get your loan. You should fix your credit card payment times, bill payment times, apartment rents and improve your monthly salary. These items will affect your annual credit score. You can get a free credit report copy from annualcredit.com web site every 12 months. This report is given 1 time in a year.
Credit score report from Fico scores
Credit reports change every year so you should control your annual credit score often if you want to improve your Fico score. Free credit score status can be learned as free from internet with various platforms but Fico score is generally enough for that. Your lender will want from you the Fico score report. Fico score is always changes thus you can get your Fico score report when you want.