What does the credit rating show?
A credit rating is an indicator that helps you understand how safe it is to trust your money to an organization. Banks, insurance companies, non-state pension funds (NPFs) and other financial organizations that work with private clients usually have such ratings.
The rating takes into account not only the current financial position of the company, the amount of capital and the amount of debt, but also the entire previous financial history. A high credit rating of an organization means that it is almost safe to trust it with money: she has always paid the bills before and now her position is quite stable. And the low one is that you risk a lot by contacting her: her business is not going very well and it is extremely likely that she will go bankrupt.
Credit ratings can also be assigned to the country as a whole, individual regions, industrial enterprises and many other organizations. The ratings reflect their ability to repay the loans taken.
In addition, there are separate ratings for bonds. They assess the ability of issuing companies to repay them on time and pay income on them. At the same time, even for the same company, different bonds may have different ratings if the risks for them differ. For example, for subordinated bonds, the rating is usually lower, which means that the risk for the buyer is higher.
What types of credit ratings are there?
There is no single global rating system. However, the credit ratings of different agencies, especially high ones, are usually comparable with each other. For example, "A+" in one system may have the same meaning as "A1" in another system and "ruA+" in a third.
As a rule, ratings with the letter "A" denote the most creditworthy companies, with the letter "B" — average reliability, and with the letter "C" — close to bankruptcy. If you see the letter "D" in the rating designation, it means default: the company has already refused to pay its debts and has actually dropped out of the financial game.
There are also gradations within letter categories: for example, the rating of "BBB" is higher than "BB" and "B", and "A+" is higher than "A" and "A—".
Together with the rating, agencies publish a forecast: for example, "stable", "positive" or "negative". It shows whether analysts expect the financial situation of the organization to change in the coming year and in which direction.
Where can I view credit ratings?
On the websites of credit rating agencies. These are special independent organizations that evaluate companies and their securities based on their own methodologies. These methodologies must comply with the law — and the Bank of Russia is monitoring this. In our country, only agencies included in the regulator's register can assign public ratings.
Leading domestic companies that attract foreign investors may also have ratings from foreign credit rating agencies. The largest, world—famous of them are Moody's, S&P and Fitch, the so-called "big three".
When can I need credit ratings?
When you choose a financial institution or securities of a company, it is worth comparing the data of different rating agencies and reading descriptions of credit ratings on their websites. This will allow you to more clearly imagine the financial condition of the organization you are interested in.
Cans
By themselves, deposits in banks are quite reliable investments. The money in the accounts of individuals, including individual entrepreneurs, is protected by the state deposit insurance system. Even if the license is revoked from the bank, a small amount will be returned to you quickly. Just make sure that the selected organization has a Bank license, and then make sure that you have no more than this amount on all your accounts in one bank, including interest on deposits.
If you want to deposit a larger amount or open an account for your business, then the approach to choosing a bank should be more serious, since the guarantee of the deposit insurance system does not apply to such investments. Focus on high and medium credit ratings that have the letter "A" or at least two letters "B".
Insurance companies and non-state pension funds (NPFs)
You need to be even more careful when choosing financial partners if you want to invest your money for a long time. For example, they decided to save money for a child's education or for their own pension with the help of accumulative life insurance or a contract with an NPF.
Since savings will have to be entrusted to them for a long time, and these deductions do not fall into the deposit insurance system, the requirements for reliability should be high. It is better to choose credit ratings of insurance companies and NPFs not lower than "BBB". And already among the most reliable, choose those that show the maximum profitability for several years.
Microfinance organizations (MFOs)
Investing money in MFIs is becoming more and more popular, because they offer returns significantly higher than banks. But such investments also do not fall into the state deposit insurance system, so the reliability of MFIs should be carefully evaluated.
MFOs are less likely than banks to receive credit ratings. If a microfinance organization is still concerned about this, it already speaks in its favor.
If you want to entrust the savings to the MFI for a short time — up to three months, you can take a chance and choose an MFI with a rating where there are only one or two letters "B". If you intend to conclude a contract for a longer period, you should focus on companies with a credit rating not lower than "BBB—". It is important to visit the websites of rating agencies from time to time and re-check this data.
Bonds
Bonds are the most predictable securities. The income on them, unlike stocks and other financial instruments, is known in advance. Risk, too, is just shown by the bond rating. At the same time, profitability and risk are closely related: the more profit you are promised, the higher the chance of not getting it.
You can buy bonds with a high credit rating, for example, "AAA", but with a moderate yield. Or you can take a risk: invest in more profitable securities with a rating at the "B" level. In this case, everything will depend on the situation in the financial market. If there are no global shocks, the company will pay its obligations on time and in full. But if some external shock happens, which the company is not able to influence, it may find itself in an unstable position and refuse to pay.
It is better for novice investors not to consider securities with a lower rating, so as not to lose money and not be disappointed in the stock market once and for all.
It is not necessary to waste time and select high-rated bonds yourself on the websites of rating agencies. Stock exchanges include all the most reliable securities in a special list – the first quotation list, or the first level of listing. These lists can be found on the website of a particular exchange.
Stocks
Stocks themselves, unlike bonds, do not have credit ratings. Therefore, when choosing stocks, you can look at the ratings of the companies that issued them. However, if a company regularly pays its debts (and therefore has a high level of credit rating), this does not mean that its business is steadily going uphill and its shares will rise in price.
In the case of stocks, it is better to look not only and not so much at the rating of the issuing company, but at the level of listing of these securities on stock exchanges.
A credit rating is an indicator that helps you understand how safe it is to trust your money to an organization. Banks, insurance companies, non-state pension funds (NPFs) and other financial organizations that work with private clients usually have such ratings.
The rating takes into account not only the current financial position of the company, the amount of capital and the amount of debt, but also the entire previous financial history. A high credit rating of an organization means that it is almost safe to trust it with money: she has always paid the bills before and now her position is quite stable. And the low one is that you risk a lot by contacting her: her business is not going very well and it is extremely likely that she will go bankrupt.
Credit ratings can also be assigned to the country as a whole, individual regions, industrial enterprises and many other organizations. The ratings reflect their ability to repay the loans taken.
In addition, there are separate ratings for bonds. They assess the ability of issuing companies to repay them on time and pay income on them. At the same time, even for the same company, different bonds may have different ratings if the risks for them differ. For example, for subordinated bonds, the rating is usually lower, which means that the risk for the buyer is higher.
There is no single global rating system. However, the credit ratings of different agencies, especially high ones, are usually comparable with each other. For example, "A+" in one system may have the same meaning as "A1" in another system and "ruA+" in a third.
As a rule, ratings with the letter "A" denote the most creditworthy companies, with the letter "B" — average reliability, and with the letter "C" — close to bankruptcy. If you see the letter "D" in the rating designation, it means default: the company has already refused to pay its debts and has actually dropped out of the financial game.
There are also gradations within letter categories: for example, the rating of "BBB" is higher than "BB" and "B", and "A+" is higher than "A" and "A—".
Together with the rating, agencies publish a forecast: for example, "stable", "positive" or "negative". It shows whether analysts expect the financial situation of the organization to change in the coming year and in which direction.
Where can I view credit ratings?
On the websites of credit rating agencies. These are special independent organizations that evaluate companies and their securities based on their own methodologies. These methodologies must comply with the law — and the Bank of Russia is monitoring this. In our country, only agencies included in the regulator's register can assign public ratings.
Leading domestic companies that attract foreign investors may also have ratings from foreign credit rating agencies. The largest, world—famous of them are Moody's, S&P and Fitch, the so-called "big three".
When can I need credit ratings?
When you choose a financial institution or securities of a company, it is worth comparing the data of different rating agencies and reading descriptions of credit ratings on their websites. This will allow you to more clearly imagine the financial condition of the organization you are interested in.
Cans
By themselves, deposits in banks are quite reliable investments. The money in the accounts of individuals, including individual entrepreneurs, is protected by the state deposit insurance system. Even if the license is revoked from the bank, a small amount will be returned to you quickly. Just make sure that the selected organization has a Bank license, and then make sure that you have no more than this amount on all your accounts in one bank, including interest on deposits.
If you want to deposit a larger amount or open an account for your business, then the approach to choosing a bank should be more serious, since the guarantee of the deposit insurance system does not apply to such investments. Focus on high and medium credit ratings that have the letter "A" or at least two letters "B".
Insurance companies and non-state pension funds (NPFs)
You need to be even more careful when choosing financial partners if you want to invest your money for a long time. For example, they decided to save money for a child's education or for their own pension with the help of accumulative life insurance or a contract with an NPF.
Since savings will have to be entrusted to them for a long time, and these deductions do not fall into the deposit insurance system, the requirements for reliability should be high. It is better to choose credit ratings of insurance companies and NPFs not lower than "BBB". And already among the most reliable, choose those that show the maximum profitability for several years.
Microfinance organizations (MFOs)
Investing money in MFIs is becoming more and more popular, because they offer returns significantly higher than banks. But such investments also do not fall into the state deposit insurance system, so the reliability of MFIs should be carefully evaluated.
MFOs are less likely than banks to receive credit ratings. If a microfinance organization is still concerned about this, it already speaks in its favor.
If you want to entrust the savings to the MFI for a short time — up to three months, you can take a chance and choose an MFI with a rating where there are only one or two letters "B". If you intend to conclude a contract for a longer period, you should focus on companies with a credit rating not lower than "BBB—". It is important to visit the websites of rating agencies from time to time and re-check this data.
Bonds
Bonds are the most predictable securities. The income on them, unlike stocks and other financial instruments, is known in advance. Risk, too, is just shown by the bond rating. At the same time, profitability and risk are closely related: the more profit you are promised, the higher the chance of not getting it.
You can buy bonds with a high credit rating, for example, "AAA", but with a moderate yield. Or you can take a risk: invest in more profitable securities with a rating at the "B" level. In this case, everything will depend on the situation in the financial market. If there are no global shocks, the company will pay its obligations on time and in full. But if some external shock happens, which the company is not able to influence, it may find itself in an unstable position and refuse to pay.
It is better for novice investors not to consider securities with a lower rating, so as not to lose money and not be disappointed in the stock market once and for all.
It is not necessary to waste time and select high-rated bonds yourself on the websites of rating agencies. Stock exchanges include all the most reliable securities in a special list – the first quotation list, or the first level of listing. These lists can be found on the website of a particular exchange.
Stocks
Stocks themselves, unlike bonds, do not have credit ratings. Therefore, when choosing stocks, you can look at the ratings of the companies that issued them. However, if a company regularly pays its debts (and therefore has a high level of credit rating), this does not mean that its business is steadily going uphill and its shares will rise in price.
In the case of stocks, it is better to look not only and not so much at the rating of the issuing company, but at the level of listing of these securities on stock exchanges.