Credit Ratings Practices and Methodologies

When an individual or any firm needs money, it approaches the lender whose job is to examine whether lending money to that borrower will be safe, i.e., whether the borrower will be able to repay the money or go bankrupt. So, the professional performing this analysis activity is called a credit research analyst. In technical terms, a credit research analyst is a finance professional proficient in evaluating an individual’s or business’s creditworthiness. Based on the borrower’s financial history and current situation, a credit research analyst determines the likelihood that a borrower will be able to meet the financial obligations and repay the loan.

• Credit analyst performs fundamental credit analysis in a corporate bond, fixed income, and many others. This involves analysis of financial statements and industry overviews. An analyst also provides critical support to portfolio managers. He has to search and collect material, create financial models, and also perform relative value analysis.
• They have to handle relationships with traders, investors, salespeople, etc.
• Overall, they undertake the risk assessment analysis of lending proposals.
• The role of credit research analyst/credit research analyst evolved around risk management, where he has to understand the risks and find out the ways to overcome these risks.
• Credit research analyst/credit research analyst jobs are also expected to remain informed about legal activities.

Creditors use a credit score rating scale to assess an individual’s creditworthiness, i.e., a person’s likelihood of whether the company can pay the debt obligation fully on time. Different credit rating agencies provide credit ratings.

A rating is given to any issuer, i.e., an individual, corporate, state, or sovereign government seeking to borrow the money. The rating does not say whether an investor should really buy that bond, but it is just one of the most important parameters an investor should consider before investing in any bond. A rating suggests both the present situation and the impact of future events on credit risk.