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In most countries, the financial records of an individual are available with different unrelated organizations and it is difficult to arrive at a credit rating for the individual. However, in developed countries like USA, Canada and parts of Europe, the credit history of an individual is compiled and maintained by credit bureaus. After statistical analysis of the credit history, an individual is assigned a three digit credit score.
The lower the credit score, the more difficult it is for the individual to borrow money and the interest rates are likely to be higher. A short term rating indicates the probability of a loan default within a year, while the long term rating is an indication of the financial stability over a period of a few years. In USA and Canada, Experian, Equifax, Transunion and Innovis are the major credit rating agencies for individuals.
Many corporations raise money by issuing bonds and other debt instruments. The credit rating of these companies is a measure of their ability to pay the lenders interest and principal on time. Standard & Poor is one of worldwide credit rating agencies, while rates corporate debit using letter designations like AAA, BB, C , etc. Sovereign credit rating is the risk of investing in foreign countries and considers both economic stability and political climate of the country. |
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