Credit Rating Agency
A Credit Rating Agency is a firm, institution or other legal entity that issues credit ratings on a professional basis. A rating agency typically publishes reports assessing the Creditworthiness of a borrower or legal entity, either generally or with respect to a specific obligation
A credit rating agency assesses the Creditworthiness of borrowers either on an absolute standalone basis or in comparison with suitably defined peer group. A Credit Rating may be business specific or financial product specific.
- In the US, recognition as Nationally Recognised Statistical Rating Organisation (NRSRO) by the Securities and Exchange Commission.
- In the EU, recognition as External Credit Assessment Institutions (ECAI) by the European Securities and Markets Authority (ESMA).
Relation to Credit Bureaus
- Rating Agencies typically focus on firms and similar legal entities which makes them distinct from Credit Bureaus which provide credit risk assessments for individuals
- Credit Ratings are usually employing a discrete Credit Rating Scale in contrast to the more granular Credit Score produced in retail credit risk assessments
Issues and Challenges
- Significant challenges revealed in the financial crisis of 2008
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