Users of Credit Ratings
1. Investors: Credit ratings are a tool used by investors to assess the degree of risk associated with buying certain assets, such as bonds or asset-backed securities. Better-rated securities are assumed to have less risk than lower-rated assets, which may provide bigger returns but also entail more risk.
2. Lenders: Banks and other financial institutions use credit ratings to determine the creditworthiness of borrowers before determining which loans to provide. Higher credit scores often translate into lower borrowing rates for the borrower.
3. Regulators: Regulatory agencies utilize credit ratings as one method to keep an eye on the financial markets. Ratings may have an effect on rules controlling which institutions may hold which securities or engage in which activities.
4. Issuers: Companies that want to issue securities for debt use credit ratings to entice buyers and give them an idea of the interest rates they will be required to pay. Higher credit ratings may result in lower borrowing costs for issuers.