Credit rating agency

A credit rating agency assesses how likely a borrower is to repay its debt and assigns a grade that summarizes that risk. The three dominant firms in the United States are Moody's, S&P, and Fitch, and their ratings cover everything from corporate bonds and bank loans to municipal debt and the US government itself.

Ratings typically run from the highest grades down through investment grade tiers, and finally into speculative or "junk" territory for issuers seen as a higher risk of default. A downgrade signals that an agency believes the borrower's ability to pay has weakened, which usually raises the interest rate that borrower must offer on new debt and can pressure the price of its existing bonds.

For stock investors, credit ratings matter beyond the bond market. A company's credit rating affects its cost of capital, since a lower rating means more expensive debt, which eats into profits and can limit how much a company can safely borrow to fund growth or buybacks. The rating agencies drew heavy criticism after the 2008 financial crisis for rating complex mortgage securities too generously, a reminder that a rating reflects one firm's opinion of risk, not a guarantee.