Crypto Terms: Letter C

What is Credit Rating?

Credit Rating MEANING:
Credit Rating - a metric used to determine if a borrower is able to repay a loan.
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Let's find out Credit Rating meaning, definition in crypto, what is Credit Rating, and all other detailed facts.

A credit rating is a metric used by banks and other lending institutions to determine if a borrower is able to repay a loan. Several factors are taken into consideration when calculating the credit rating; they can vary between different countries and institutions.

As a metric, credit rating applies not just to individual customers but also to companies and any entities interested in taking out a loan. It is the key determining factor whether the interested entity can be granted a loan.

Credit rating agencies are companies that analyze the creditworthiness of customers. Depending on their type, credit rating agencies may only work with credit score evaluations to work with a variety of clients.

Credit rating is calculated using factors that may differ between individual and corporate borrowers. Some of the most common factors taken into account are settled and outstanding debt, repayment history, and monthly income. Furthermore, homeownership may affect the credit score, particularly if the borrower has previously taken out a mortgage for the property.

Credit rating can be either long-term or short-term, depending on the loan type. Short-term credit rating is taken into account for smaller loans with fewer repayments, while long-term credit rating is analyzed for bigger credits with more repayment installments.

There are three major companies that stand out in the global credit rating industry – Moody's, S&P Global, and Fitch Ratings. They evaluate credit rating on a governmental level by analyzing the economic situation of the state as well as their ability to accept more national debt.

Maintaining a good credit score can impact an individual’s or company’s chances of receiving a loan in the future. A good credit rating is more likely to ensure that the loan will be granted with favorable interest rates and APR. However, a bad credit score can lead to higher interest rates or the loan being declined altogether.