What Does Credit Rating Mean?

What Does Credit Rating Mean?

"An assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities".

A credit rating estimates the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit bureaus of a borrower’s overall credit history. "A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender (Black's Law Dictionary)". Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. However, in recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit.

Personal Credit Ratings

An individual's credit score, along with his credit report, affects his or her ability to borrow money through financial institutions such as banks.

The factors that may influence a person's credit rating are:

• ability to pay a loan
• interest
• amount of credit used
• saving patterns
• spending patterns
• debt

Procedure of Credit Rating

1. Application At this stage client’s authorized representatives need to register the application officially and to sign an agreement on implementation of rating procedure. At this time company and client’s representatives discuss all the questions concerning rating assignment and main aspects of future cooperation.

2. Analytic group After all the questions are discussed, Credit-Rating agency begins preparation procedure and forms analytic group. Analytic group consists of two or three analysts and group manager (leading analyst) who controls the whole work.

3. Information requirements To get all the information necessary for analysis, ‘Credit-Rating’ agency sends a client the letter with information requirements: a list of all the information and documents necessary for credit rating analysis. ‘Credit-Rating’ guarantees that your confidential information will be kept safe.

4. Meetings with client company managers Meetings and consultations with client company managers and officials are very important in the process of credit rating assignment. As a rule, we need two or three meetings. In the first meeting analysts would ask questions about financial plans and further development prospects. This information helps us to remain objective in assessment of client’s financial position for the long-term period.

5. Analysis All the information obtained from a client or other reliable sources is processed with a help of special methodologies, worked out by our agency.

6. Analysis consists of the following components:

a. Qualitativeanalysis – our specialists study management system of the issuer, financial and development plans, conduct SWAT-analysis, pay special attention to documentation, market niche, economic activity.

b. Quantitative analysis – analysts study accounts coefficients that determine financial activity and financial position of the issuer. We use both standard methods (analysis of internal and external factors, profitability) and special methods worked out by out analysts to determine financial position and development tendencies of the issuer.

c. Legal analysis – we study financial and economic activity of the issuer to be sure it corresponds to Ukrainian Legislation; analysis also includes studying of management, labor and business relations and legal field of cooperation between central office and affiliates.

After all types of analysis have been conducted, the results are brought together and analytic group sums up pilot analysis. Final meeting with client company managers serves for completing missing information or clearing up some questionable situations. It is necessary for qualified analysis and procession of final analysis results.

7. Rating committee Analytic group prepares presentation based on results of analysis and suggests assigning one or another credit rating. The presentation is submitted to rating committee consisting of four or five members. All committee members are qualified in the sphere of Client Company’s activity. Having studied all the materials, rating committee takes a decision about credit rating assignment. A client receives written notice and rating report with detailed grounding of assigned rating.

8. Rating publication Decision about rating publication is taken by a client individually. Client may decide not to publish assigned rating. Even if rating is not published the procedure of credit rating assignment remains useful as conclusions of agency analysts written in the rating report may help to determine factors influencing client’s credibility. Their improvement in the future may lead to credit rating upgrade. Agency may not submit publication of upgrades/downgrades of once published rating to client’s approval.

9. Appeal If a client thinks that in the process of rating assignment some important factors have not been taken into consideration, client’s authorized representatives may appeal to rating committee within the next ten days after rating assignment. The appeal will be accepted only if a client can bring new data and documents that are important for rating procedure. After examination of these documents, credit rating committee will take a decision which cannot be appealed. Appeal procedure does not influence on client’s rights on rating publication.