A measure of a person or entity’s ability to meet certain financial requirements or obligations. Credit ratings are based on credit history, current financial position, and ability to generate future income, and look to predict the likeliness of the debtor defaulting. Common rated debt instruments include government bonds, municipal bonds, corporate debt, and collateralized securities.
Moody’s, Standard & Poor’s, Fitch Ratings and DBRS are currently the only four credit rating agencies that are recognized by the European Central Bank (ECB). Ranging from junk to investment-grade, credit ratings help investors judge their risk-adjusted return on a particular investment. The recognized rating for a financial instrument is the highest one assessed by any of the four rating agencies.