Credit Rating is an assessment of the borrower (be it an individual, group or company) that
determines whether the borrower will be able to pay the loan back on time, as per the loan
agreement. Needless to say, a good credit rating depicts a good history of paying loans on time
in the past. This credit rating influences the bank’s decision of approving your loan application at
a considerate rate of interest.
It is usually expressed in alphabetical symbols. Although, it is a new concept in Indian financial
market but slowly its popularity has increased. It helps investors to recognize the risk involved in
lending the money and gives a fair assessment of the borrower’s creditability.
BENEFITS OF CREDIT RATING:
For The Money Lenders
1. Better Investment Decision: No bank or money lender companies would like to give
money to a risky customer. With credit rating, they get an idea about the credit
worthiness of an individual or company (who is borrowing the money) and the risk factor
attached with them. By evaluating this, they can make a better investment decision.
2. Safety Assured: High credit rating means an assurance about the safety of the money and
that it will be paid back with interest on time.
For Borrowers
1. Easy Loan Approval: With high credit rating, you will be seen as low/no risk customer.
Therefore, banks will approve your loan application easily.
2. Considerate Rate of Interest: You must be aware of the fact every bank offers loan at a
particular range of interest rates. One of the major factors that determine the rate of
interest on the loan you take is your credit history. Higher the credit rating, lower will the
rate of interest.
As a matter of fact, every credit rating agency has their algorithm to evaluate the credit rating.
However, the major factors are credit history, credit type and duration, credit utilization, credit
exposure, etc. Every month, these credit rating agencies collect credit information from partner
banks and other financial institutions. Once the request for credit rating has been made, these
agencies dig out the information and prepare a report based on such factors. Based on that report,
they grade every individual or company and give them a credit rating. This rating is used by
banks, financial institutions and investors to make a decision of investing money, buying bonds
or giving loan or credit card. The better is the rating; more are the chances of getting money at
payable interest rates.
Credit Rating Agencies in India
Credit rating agency is an organization that evaluates the credit worthiness of an individual,
business or company who wishes to borrow money or apply for a credit card in the bank.
CRISIL
Credit Rating Information Services of India Limited is the first credit rating agency of the
country which was established in 1987. It calculates the credit worthiness of companies based on
their strengths, market share, market reputation and board. It also rates companies, banks and
organizations, helping investors make a better decision before investing in companies’ bonds. It
offers 8 types of credit rating which are as follows:
AAA, AA, A – Good Credit Rating
BBB, BB – Average Credit Rating
B, C, D – Low Credit Rating
ICRA
Investment Information and Credit Rating Agency of India was formed in 1991 and is
headquartered in Mumbai. It offers comprehensive ratings to corporate via a transparent rating
system. Its rating system includes symbols which vary with the financial instruments. Here are
the types of credit ratings offered by ICRA:
Bank Loan Credit Rating
Corporate Debt Rating
Corporate Governance Rating
Financial Sector Rating
Issuer Rating
Infrastructure Sector Rating
Insurance Sector Rating
Mutual Fund Rating
Public Finance Rating
Project Finance Rating
Structured Finance Rating
SME Rating
CARE
Credit Analysis and Research Limited (CARE) offers a range of credit rating services in areas
like debt, bank loan, corporate governance, recovery, financial sector and more. Its rating scale
includes two categories – long term debt instruments and short term debt ratings.
ONICRA
Onida Individual Credit Rating Agency of India established in 1993 which offers credit
assessment and credit scoring services to both individuals and businesses. Along with this, it also
offers risk assessment reports to individuals, small and medium businesses and corporate. Its
ratings are based on two factors – Financial Strength and Performance Capability.
SMERA
Small Medium Enterprises Rating Agency Of India Limited has two divisions – SME Ratings
and Bond Ratings. It was established in 2011 and is a hub of financial professionals. It offers
credit ratings in the following format:
AAA, AA, A – Low Credit Risk
BBB, BB – Moderate Credit Risk
B, C – High Credit Risk
D- Defaulted
Brickwork Ratings India Private Limited
Headquartered in Bangalore, this credit rating agency is responsible to rate bank loans, municipal
corporation, capital market instrument and SMEs. Other than this, it is also responsible to grade
real estate investments, hospitals, NGOs, MFI, etc. It offers various rating system depending
upon the different financial instrument.
CREDIT RATING CREDIT SCORE
Credit Rating is basically a credit worthiness of Credit score is a number, calculated by credit
a business or a company. bureau and given to individuals based on the
credit information report.
It gives an understanding the ability of the
company
These ratings are based on corporate financial This number can be in between 300 and 900
instruments and usually denoted in alphabetical
symbols.
How Are Credit Report & Credit Score Connected?
A higher credit score on your report represents a lower credit risk for new loans provided to the
individual and vice versa. Therefore higher your credit score, the greater is your credit
worthiness as determined by the lender and the lower the perceived risk of lending you more
money. So while your credit report contains your entire credit history, your credit score is a
summation of the same and acts as a snapshot of your credit history with respects of all past and
current debt instruments.
When you apply for a loan or credit card, it is extremely likely that the prospective lender will
pull your credit score. That will help them determine the prospective borrower’s credit risk.
The closer your score is to 900, the more the chances of your loan or credit card application
being approved by the bank. Many companies have pre-set standards on loan issue matters. If the
credit score is within a certain range, the lender may offer loan at a preferred (lower) interest rate
or provide you with a credit card with a higher credit limit, though all other terms & conditions
will most likely be the same.
The rating process takes about two to three weeks, depending on the complexity of the
assignment and the flow of information from the client. Ratings are assigned by the Rating
Committee.
