A credit report showing a person's credit rating sits next to a calculator and computer.

What Are Credit Ratings?

5 min read

Published February 20, 2026

Table of contents

Key Takeaways

A credit rating estimates the likelihood that a major entity, like a corporation or government, will default on their debt.
Factors like payment history, existing debts, and current economic conditions influence credit ratings.
While credit ratings apply to businesses and governments, credit scores apply to individual consumers.

Estimating risk is important for lenders and investors alike. Before making someone a loan or credit card offer, lenders typically try to determine whether they’re likely to get their money back.

Likewise, an investor usually wants to understand potential dangers before putting money toward a debt instrument, like a bond. But financial institutions can’t predict the future. Instead, they often use tools like credit ratings to assess risk before making major financial moves.

Definition of credit rating

A credit rating is an evaluation, like a grade, of a corporate, government, or municipal borrower’s likelihood of paying back a debt in full, according to the Congressional Research Service. A high credit rating points to a low credit risk.

Specialized agencies use specific formulas to calculate credit ratings. According to the U.S. Securities and Exchange Commission, some of the registered credit rating agencies include Moody’s Investors Service^®, Fitch Ratings Inc.^®, and S&P Global Ratings^® (which was formerly known as Standard & Poor’s Ratings Services^®).

Credit ratings may shine a light on the financial health of a corporation or government, which helps investors and others make informed financial and lending decisions.

How are credit ratings different from credit scores?

A credit rating and a credit score are similar, but they’re not exactly the same. Typically, credit ratings apply to big borrowers, like organizations, governments, and corporations. Credit scores, on the other hand, often apply to individual borrowers (though business credit scores exist as well).

If you have a credit history, the major consumer credit bureaus likely receive information from your lenders about your account activity. Each credit bureau compiles that information into your credit report, which is the basis for your three-digit/letter credit score.

Like a credit rating, your credit score is a measure of your creditworthiness, or your likelihood of repaying debts on time. A good credit score may help you qualify for a wider range of loan and credit card options with perks like rewards.

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Credit scoring models may vary slightly, but factors like your payment history, credit utilization, length of credit history, and credit mix typically influence your credit score. While credit ratings and credit scores aren’t the same, you may notice some institutions using them interchangeably. A “personal credit rating” typically refers to your credit score.

How are credit rating scores determined?

Each credit rating agency calculates credit ratings differently. But credit ratings often depend mostly on the borrower’s financial history and experience managing debt. Some factors that may influence a credit rating include:

Payment history. A borrower who has missed payments or defaulted on loans may not earn a strong credit rating.
Current debt. The loans, credit cards, and lines of credit that a borrower already has may affect their creditworthiness and ability to manage more debt.
Earnings and expenses. Cash flow may impact how a corporate borrower manages debts. A company that makes a lot of money but keeps expenses low, for example, may more easily avoid defaulting.
Market conditions. Economic trends or changes within a particular sector may affect a borrower’s ability to repay debts and their credit rating.

Like credit scores, credit ratings aren’t always an exact science. Even businesses with high credit ratings may default or face other financial stumbling blocks.

What scales are used for credit ratings?

Every agency may use a slightly different credit rating scale. But many scales feature alphabetical rating symbols. For example, Fitch^® ratings range from a “D,” which means the entity in question has defaulted on their debt, to an “AAA,” which means the entity in question has the lowest possible risk of defaulting on their debt.

On the Fitch^® Rating Scale and others, double or triple letters denote a higher credit rating. So, a BBB rating is higher than a BB rating, which is higher than a B rating.

What is a good credit rating?

What qualifies as a “good” credit rating depends on the lender’s or investor’s priorities.

The higher a company’s or government’s credit rating is, the safer it is as an investment. So, an investor looking for an investment opportunity with low credit risk may choose a business with a BBB score or higher.

However, a wide range of priorities may influence investment decisions. Sometimes, an option with a lower credit rating may be a better fit for certain investors.

Did you know?

For a corporation or government, establishing a strong credit rating is often a complex process. But building your credit score doesn’t have to be complicated. Responsibly using a credit card designed for beginners may help you build credit history.

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The bottom line

Credit ratings are important tools that help lenders, investors, and even governments make vital financial and credit decisions. Understanding credit ratings may help you make more sense of how money moves in the world.

But when it comes to your personal financial well-being, your credit scores are likely to have a much greater impact. You may establish strong credit scores by keeping your balances to a minimum, paying your bills on time each month, and practicing responsible credit habits.

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