What is the role of a credit rating agency?

A credit rating agency assesses the creditworthiness of a borrower, whether it’s an individual, company, or government. These agencies, such as Moody’s, Standard & Poor’s, and Fitch, assign credit ratings to bonds and other debt instruments, which indicate the level of risk associated with lending to the entity. A high credit rating suggests a low risk of default and results in lower borrowing costs for the issuer, while a lower credit rating indicates higher risk and higher interest rates. Credit rating agencies help investors make informed decisions and play a vital role in maintaining stability in financial markets.