The Relevance of Rating Agencies

5 reasons to explain the importance of rating agency

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Credit rating agencies basically check and determine the ability of individuals, companies, countries to pay back debt. It assesses the creditworthiness of various bodies.
Now that we have an idea of what credit rating agencies are, what then are the impacts they have on businesses and economies? That is what this article aims to shed lighter upon. Below are five reasons why credit rating agencies are vital in financing:
1.Transparency: This agency helps banks in determining who to lend money to and otherwise. Without credit rating institutions, it would be an added and arduous task for the bank to go about finding the credit rating of potential individuals who desire loans.
2.Easy loan access: Good credit ratings from these agencies enhance the chances of getting loans from financial institutions. Banks are more likely to lend to individuals or corporations that have the capacity to pay back the loan. Customers or institutions with poor credit ratings may even find it impossible to access loans.
3.Lessens the interest rate for borrowers: A good credit rating from a reputable rating agency lessens the amount of interest individuals have to pay back on loans. The better your credit rating, the more favorable your potential loan conditions are.
4.Investors: Credit rating agencies go a long way in determining the success of organizations. With good credit ratings, their bonds and stocks will be more valuable and they tend to attract more investors.
5.Foreign Loans/Investments: Countries that possess high credit scores from credit rating agencies can easily purchase loans from outside their countries. A good credit score also increases the number of foreign investors willing to invest in the country.
From the few points listed above, it can be seen that credit rating agencies play very important roles in the financial well-being of businesses and economies.
In closing, some of the most popular credit rating agencies include, Standard & Poor’s, Moody’s Investors Service and Fitch Ratings Ltd.
Marco Barchetti
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The Relevance of Rating Agencies
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