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What is credit rating? What are its main features?
Credit rating is the rating which gives the estimate of the individual company, corporation of country's worth. Credit bureau makes an evaluation of borrower's credit history and then according to that the actions on it take place. Credit rating shows the ability of the borrower to pay the debt to the lender on request to the credit bureau. The calculation of it depends on the financial history, current assets and liabilities. The probability of a borrower to pay back of its loan can be seen by this which tells a lender or investor about it.
The main features which are involved with the credit ratings are as follows:-
1) It is used to estimate the worthiness of the credit for the company, country or any individual company.
2) Credit rating is been done after considering various factors such as finacncial, non-financial parameters, and past credit history.
3) The rating which gets done is simple and it facilitates universal understanding. Credit rating also makes it widely accepted as the symbols which are used are generalized and made common for all.
4) The process of credit rating is very detailed and it involves lots of information such as financial information, client's office and works information and other management information. It involves in-depth study.
When is credit rating obligatory?
Credit rating is obligatory when the lenders need to share some information about you and it is also been done to protect their interest that the client will one day repay the loan. In this what happens is that all the lenders remain in the sync with each other and keep the information of the client with each other so that they can share the information together because if a lender gives money to the client then tomorrow if another client gives the money to the same client then it becomes difficult for the client to pay it off the loan which has been taken so they both can collaborate together to prevent this misunderstanding.
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