A credit rating is an assessment of the creditworthiness granted to the rating agency’s securities and their issuers, which are usually states, municipalities or large companies. What are credit rating agencies? International rating agencies such as Satisfaction Plus Credits , Happyface Investors Service , and Nitch are rating credit rating countries. In addition to those already mentioned, Latvia is also rated by the Japanese rating agency R&I. These combinations determine how profitable it is to invest in these countries. The lower the credit rating, the lower the chance for the country to borrow foreign funds. For example, Latvia currently has BBB +, which provides good prospects for foreign funds, in addition to low interest payments or a longer repayment term.
How does credit rating work?
The credit rating is based on the current financial situation and financial history of the above-mentioned market participants, as well as assessing their assets and financial liabilities (credit liabilities). There are many different criteria for obtaining a credit rating, which are determined individually by each rating agency, but the common criteria are: import, export, inflation, economy, government stability and influence, fiscal policy and other factors. It should be mentioned that the credit rating is not generated automatically – it is obtained by analyzing the data and analytically thinking, and it changes periodically. Often, credit rating is delayed, losing objectivity and credibility, so many investors use not only credit ratings but also other data for country valuation. Credit rating agencies are often also blamed for economic crises, because valuation specifics often give country credit ratings that are not actual or unduly low, which reduce investment potential.
Why is Credit Rating Generated?
A credit rating is an indicator that helps potential creditors and investors understand in a timely manner the ability to settle financial liabilities, as well as an indicator that helps to assess the financial credibility of the object and the risk of insolvency.
Where is the credit rating applied?
It may seem that the credit rating is only used in the field of lending, but the scope of its application is expanding, and it is also used in areas such as the calculation of new insurance premiums, the calculation of rental rentals, and the examination of vacancies to help assess the qualities of candidates.