What Is a Credit Rating?
A credit rating is an agency's assessment of how likely a borrower is to repay its debt. How the rating scale works, what investment grade means, and the limits of ratings.
In one sentence
Credit rating. A rating agency's assessment of a borrower's ability to repay, expressed as a letter grade such as AAA or BB.
How it works
Credit rating agencies assign ratings based on their assessment of the risk that a borrower will default on its bonds, and they review and revise those ratings as conditions change.1 In the US, agencies registered with the SEC are called nationally recognized statistical rating organizations. Eleven were registered as of March 2026, among them S&P Global Ratings, Moody's Investors Service, and Fitch Ratings.2
| Category | S&P and Fitch | Moody's |
|---|---|---|
| Investment grade | AAA, AA, A, BBB | Aaa, Aa, A, Baa |
| High yield | BB, B, CCC and below | Ba, B, Caa and below |
Bonds rated Baa or BBB and better are investment grade, and those rated Ba or BB and lower are high yield.3 Lower-rated bonds generally pay higher interest to compensate for greater risk.1
Ratings change
A rating describes a borrower today. In S&P's long-run data, in an average year about 87% of BBB-rated companies were still rated BBB a year later, about 3% had been upgraded to A, and about 4% had fallen below investment grade or defaulted.4
Learn it properly
- Debt, Covenants, and Credit RatingsCorporate Finance (depth track)
- Treasuries, Corporate Bonds, and MunisPart 2: What You Can Own
Notes and sources
- Investor.gov, U.S. Securities and Exchange Commission. What Are Corporate Bonds?. Checked 2026-09-30. Back to text
- U.S. Securities and Exchange Commission, Office of Credit Ratings. Current NRSROs (updated March 27, 2026). Checked 2026-10-13. Back to text
- FINRA. Bonds. Checked 2026-10-13. Back to text
- S&P Global Ratings (copy published by S&P Global Ratings Maalot). Default, Transition, and Recovery: 2023 Annual Global Corporate Default And Rating Transition Study (March 28, 2024). Checked 2026-10-13. Back to text