credit rating

credit rating
An assessment of the creditworthiness of an individual or a firm, i.e. the extent to which they can safely be granted credit. Traditionally, banks have provided confidential trade references, but more recently credit-reference agencies (also known as credit reporting agencies) have grown up, which gather information from a wide range of sources, including the county courts, bankruptcy proceedings, hire-purchase companies, and professional debt collectors. This information is then provided, for a fee, to interested parties. The consumer was given some protection from such activities in the Consumer Credit Act (1974), which allows an individual to obtain a copy of all the information held by such agencies relating to that individual, as well as the right to correct any discrepancies. There are also agencies that specialize in the corporate sector, giving details of a company's long-term and short-term debt. This can be extremely important to the price of the company's shares on the market, its ability to borrow, and its general standing in the business community. Credit ratings for the stocks of large corporations are provided by such institutions as Moody's Investor Service and Standard and Poor.

Accounting dictionary. 2014.

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