Monitoring credit ratings

Credit ratingCredit rating A way to score a person or company’s ability to repay money that it borrows based on credit and payment history. Your credit score is based on your borrowing history and financial situation, including your savings and debts.+ read full definition agencies assign credit ratings to bondBond A kind of loan you make to the government or a company. They use the money to run their operations. In turn, you get back a set amount of interest once or twice a year. If you hold bonds until the maturity date, you will get all your money back as well. If you sell…+ read full definition issuers and to specific bonds. A credit rating can provide information about an issuerIssuer An organization that offers securities for sale to investors. Examples: corporations, investment trusts and government bodies.+ read full definition’s ability to make interest payments and repay the principalPrincipal The total amount of money that you invest, or the total amount of money you owe on a debt.+ read full definition on a bond at maturity. In general, the higher the credit rating, the more likely it is – in the opinion of the rating agency – that an issuer will meet its payment obligations.

Credit ratings can change over time, so it’s a good idea to monitor the ratings of any bonds you own. If an issuer’s credit rating goes up, the price of its bonds will rise. If the rating goes down, it will drive its bond prices lower.

4 main credit rating agencies in Canada

Each agency has its own system for evaluating credit worthiness and its own way of assigning ratings:

Key point

Credit ratings can change over time. If an issuer’s rating goes up, the price of its bonds will rise. If the rating goes down, the price will drop.

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