What do you mean by Credit Rating Agency...

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Fairy Kumar

| Updated on April 6, 2019 | Share-Market-Finance

What do you mean by Credit Rating Agency Options?

2 Answers
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Fairy Kumar

@fairykumar7314 | Posted on April 6, 2019

Credit rating agencies provide a service by grading the fixed-income products offeredby companies. Analysts face challenges related to incentives and compensation schemes that may be tied to the final rating and successful placement of the product.
Members and candidates employed at rating agencies should ensure that proceduresand processes at the agencies prevent undue influences from a sponsoring company during the analysis. Members and candidates should abide by their agencies’ and the industry’s standards of conduct regarding the analytical process and the distribution
of their reports.

The work of credit rating agencies also raises concerns similar to those inherentin investment banking relationships. Analysts may face pressure to issue ratings at a specific level because of other services the agency offers companies—namely, advising on the development of structured products. The rating agencies need to develop the necessary firewalls and protections to allow the independent operations of their different business lines.

When using information provided by credit rating agencies, members and candidates should be mindful of the potential conflicts of interest. And because of the potential conflicts, members and candidates may need to independently validate the
rating granted.
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Mayank Gupta

@mayankgupta5585 | Posted on April 7, 2019

Credit Rating is rating the credit giving capacity of the company. Credit rating is generally given to the companies of highlight their credit worthiness and generally to the securities issued by companies.

The credit rating are generally given by the high profiled companies and agencies like CARE , ICRA, etc. The ratings vary from AAA, AA , BBB, BA, etc. These credit rating have a great impact on the securities issued by the companies.

Generally, these agency follow strict rules and procedures in granting the rating to the securities. Different agencies have different parameters on which it look at the companies. Some of the common parameters include the financial position of a company, the governance policies, the audit reports, etc.


The credit score of the company determine whether the company's credit worthiness is good or bad and whether company can repay what it captures from the market. It can significantly affect the business or corporations image. Low credit rating securities and companies find it difficult to raise money from the market and the previous lenders also losses faith and trust from the company.

Thus a good credit score is necessary to raise money from the market in the future to exploit the future opportunities. We have also seen the incidences of how crucial role these credit rating agencies play in the financial market. For eg The Global Crisis of the 2008 is caused by the highly credit ratings given to the securities which were not that capital sound and in turn those companies fail to return the money to the lenders and thus these failure to unmet the obligations on a large scale caused the global depression.

Thus these credit rating agencies have an immense importance. Whenever they lower down the ratings of a company, it causes a volatility in the market. From the corporate governance point of view also these agencies play a much vital role.
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