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Nikolai kept the money in one of the banks and was not worried: after all, his deposit is protected by the deposit insurance system. But when deposit rates began to decline, he decided to invest the money somewhere else in order to get more income. How to understand who can be trusted with savings without special fears, and with whom it is better not to get involved? We will tell you what credit ratings are and how they can help you understand the risks.
What does the credit rating show?
Credit rating is an indicator that helps to understand how safe it is to trust an organization with your money. Banks, insurance companies, private pension funds and other financial institutions that work with private clients usually have such ratings.
The rating takes into account not only the current financial position of the company, the amount of capital and the amount of debt, but also the entire previous financial history. The high credit rating of the organization means that it is almost safe to trust it with money: it has always paid the bills before and now its position is quite stable. And low - that you are at great risk by contacting her: she is not doing very well and it is highly likely that she will go bankrupt.
Credit ratings can also be assigned to the country as a whole, individual regions, industrial enterprises and many other organizations. The ratings reflect their ability to repay borrowed loans.
In addition, there are separate ratings for bonds. They assess the ability of the issuing companies to repay them on time and pay the income on them. At the same time, even for the same company, different bonds may have a different rating if the risks for them differ. For example, on subordinated bonds, the rating is usually lower, which means that the risk to the buyer is higher.
What are the types of credit ratings?
There is no single global or even rating system. However, the credit ratings of different agencies, especially high ones, are usually comparable to each other. For example, "A +" in one system may have the same meaning as "A1" in another system and "ruA +" in the third.
As a rule, ratings with the letter “A” denote the most creditworthy companies, those with the letter “B” - average in terms of reliability, and those with the letter “C” - those close to bankruptcy. If you see the letter “D” in the designation of the rating, it means a default: the company has already refused to pay its debts and has actually dropped out of the financial game.
Within the letter categories there are also gradations: for example, the rating "BBB" is higher than "BB" and "B", and "A +" is higher than "A" and "A—".
Along with the rating, the agencies publish a forecast: for example, “stable”, “positive” or “negative”. It shows whether analysts expect the financial position of the organization to change in the coming year and in what direction.
Where can I find credit ratings?
On the sites of credit rating agencies. These are special independent organizations that evaluate companies and their securities based on their own methodologies. These methodologies must comply with the law - and this is monitored by the Bank. In our country, only agencies included in the register of the regulator can assign public ratings .
Leading domestic companies that attract foreign investors may also have ratings from foreign credit rating agencies. The largest, world-famous of them are Moody's, S&P and Fitch, the so-called "big three". All of them have branches and maintain websites: there you can see the ratings of Russian industrial and financial giants, as well as their Eurobonds.
Agencies constantly monitor the financial condition of organizations that have been given ratings. If this state changes, they can raise or lower their ratings. Therefore, it makes sense to follow the financial news and periodically re-check the credit ratings of the selected company or financial instrument.
When do I need credit ratings?
When you are choosing a financial institution or securities of a company, it is worth comparing the data of different rating agencies and reading the descriptions of credit ratings on their websites. This will allow you to more clearly understand the financial condition of the organization you are interested in.
Banks
By themselves, deposits in banks are quite reliable investments. The money in the accounts of individuals, including individual entrepreneurs, is protected by the state deposit insurance system. Even if the bank's license is revoked, the amount within $ 20000 will be returned to you quickly. Just make sure that the chosen organization has a license from the Bank, and then make sure that on all your accounts with one bank you have no more than $ 20000, including interest on deposits.
If you want to put a larger amount on a deposit or open an account for your business, then the approach to choosing a bank should be more serious, since the guarantee of the deposit insurance system does not apply to such investments. Focus on high and medium credit ratings, which have the letter "A" or at least two letters "B".
Insurance companies and non-state pension funds (NPF)
You need to be even more careful when choosing financial partners if you want to invest your money for a long time. For example, they decided to save money for the education of a child or for their own retirement with the help of accumulative life insurance or an agreement with an NPF.
Since the savings will have to be entrusted to them for a long time, and these contributions do not fall into the deposit insurance system, the requirements for reliability should be high. It is better to choose credit ratings of insurance companies and private pension funds not lower than "BBB". And already among the most reliable, choose those that show the maximum profitability over several years.
Microfinance organizations (MFOs)
Investing in MFIs is becoming increasingly popular as they offer significantly higher returns than banks. But such investments also do not fall into the state deposit insurance system, so the reliability of MFIs should be carefully evaluated.
MFIs receive credit ratings less often than banks. If the microfinance organization is nevertheless concerned with this, this already speaks in its favor.
If you want to entrust the savings to MFOs for a short time - up to three months, you can take a risk and choose an MFO with a rating where there are only one or two letters "B". If you intend to conclude an agreement for a longer period, it is worth staying at companies with a credit rating of at least "BBB—". It is important from time to time to visit the websites of rating agencies and re-check these data.
Bonds
Bonds are the most predictable securities. The income on them, unlike stocks and other financial instruments, is known in advance. The risk is also - it is shown by the rating of bonds. At the same time, profitability and risk are closely related: the more profit you are promised, the higher the chance of not getting it.
You can buy bonds with a high credit rating, such as AAA, but with a moderate yield. Or you can take the risk: invest in more profitable securities with a rating of "B". In this case, everything will depend on the situation in the financial market. If there are no global shocks, the company will pay its obligations on time and in full. But if some external shock happens, which the company is unable to influence, it may find itself in an unstable position and refuse payments.
It is better for novice investors not to consider securities with a lower rating, so as not to lose money and not be disappointed in the stock market once and for all.
It is not necessary to waste time and select bonds with a high rating on the sites of rating agencies yourself. All the most reliable securities of stock exchanges are included in a special list - the first quotation list, or the first level of listing. These listings can be found on the specific exchange website.
Promotions
By themselves, stocks, unlike bonds, do not have credit ratings. Therefore, when choosing shares, you can look at the ratings of the companies that issued them. However, if a company regularly pays its debts (and therefore has a high credit rating), this does not mean that its business is steadily going uphill and its shares will rise in value.
In the case of stocks, it is better to look not only and not so much at the rating of the issuing company, as at the level of listing of these securities on stock exchanges.
What does the credit rating show?
Credit rating is an indicator that helps to understand how safe it is to trust an organization with your money. Banks, insurance companies, private pension funds and other financial institutions that work with private clients usually have such ratings.
The rating takes into account not only the current financial position of the company, the amount of capital and the amount of debt, but also the entire previous financial history. The high credit rating of the organization means that it is almost safe to trust it with money: it has always paid the bills before and now its position is quite stable. And low - that you are at great risk by contacting her: she is not doing very well and it is highly likely that she will go bankrupt.
Credit ratings can also be assigned to the country as a whole, individual regions, industrial enterprises and many other organizations. The ratings reflect their ability to repay borrowed loans.
In addition, there are separate ratings for bonds. They assess the ability of the issuing companies to repay them on time and pay the income on them. At the same time, even for the same company, different bonds may have a different rating if the risks for them differ. For example, on subordinated bonds, the rating is usually lower, which means that the risk to the buyer is higher.
What are the types of credit ratings?
There is no single global or even rating system. However, the credit ratings of different agencies, especially high ones, are usually comparable to each other. For example, "A +" in one system may have the same meaning as "A1" in another system and "ruA +" in the third.
As a rule, ratings with the letter “A” denote the most creditworthy companies, those with the letter “B” - average in terms of reliability, and those with the letter “C” - those close to bankruptcy. If you see the letter “D” in the designation of the rating, it means a default: the company has already refused to pay its debts and has actually dropped out of the financial game.
Within the letter categories there are also gradations: for example, the rating "BBB" is higher than "BB" and "B", and "A +" is higher than "A" and "A—".
Along with the rating, the agencies publish a forecast: for example, “stable”, “positive” or “negative”. It shows whether analysts expect the financial position of the organization to change in the coming year and in what direction.
Where can I find credit ratings?
On the sites of credit rating agencies. These are special independent organizations that evaluate companies and their securities based on their own methodologies. These methodologies must comply with the law - and this is monitored by the Bank. In our country, only agencies included in the register of the regulator can assign public ratings .
Leading domestic companies that attract foreign investors may also have ratings from foreign credit rating agencies. The largest, world-famous of them are Moody's, S&P and Fitch, the so-called "big three". All of them have branches and maintain websites: there you can see the ratings of Russian industrial and financial giants, as well as their Eurobonds.
Agencies constantly monitor the financial condition of organizations that have been given ratings. If this state changes, they can raise or lower their ratings. Therefore, it makes sense to follow the financial news and periodically re-check the credit ratings of the selected company or financial instrument.
When do I need credit ratings?
When you are choosing a financial institution or securities of a company, it is worth comparing the data of different rating agencies and reading the descriptions of credit ratings on their websites. This will allow you to more clearly understand the financial condition of the organization you are interested in.
Banks
By themselves, deposits in banks are quite reliable investments. The money in the accounts of individuals, including individual entrepreneurs, is protected by the state deposit insurance system. Even if the bank's license is revoked, the amount within $ 20000 will be returned to you quickly. Just make sure that the chosen organization has a license from the Bank, and then make sure that on all your accounts with one bank you have no more than $ 20000, including interest on deposits.
If you want to put a larger amount on a deposit or open an account for your business, then the approach to choosing a bank should be more serious, since the guarantee of the deposit insurance system does not apply to such investments. Focus on high and medium credit ratings, which have the letter "A" or at least two letters "B".
Insurance companies and non-state pension funds (NPF)
You need to be even more careful when choosing financial partners if you want to invest your money for a long time. For example, they decided to save money for the education of a child or for their own retirement with the help of accumulative life insurance or an agreement with an NPF.
Since the savings will have to be entrusted to them for a long time, and these contributions do not fall into the deposit insurance system, the requirements for reliability should be high. It is better to choose credit ratings of insurance companies and private pension funds not lower than "BBB". And already among the most reliable, choose those that show the maximum profitability over several years.
Microfinance organizations (MFOs)
Investing in MFIs is becoming increasingly popular as they offer significantly higher returns than banks. But such investments also do not fall into the state deposit insurance system, so the reliability of MFIs should be carefully evaluated.
MFIs receive credit ratings less often than banks. If the microfinance organization is nevertheless concerned with this, this already speaks in its favor.
If you want to entrust the savings to MFOs for a short time - up to three months, you can take a risk and choose an MFO with a rating where there are only one or two letters "B". If you intend to conclude an agreement for a longer period, it is worth staying at companies with a credit rating of at least "BBB—". It is important from time to time to visit the websites of rating agencies and re-check these data.
Bonds
Bonds are the most predictable securities. The income on them, unlike stocks and other financial instruments, is known in advance. The risk is also - it is shown by the rating of bonds. At the same time, profitability and risk are closely related: the more profit you are promised, the higher the chance of not getting it.
You can buy bonds with a high credit rating, such as AAA, but with a moderate yield. Or you can take the risk: invest in more profitable securities with a rating of "B". In this case, everything will depend on the situation in the financial market. If there are no global shocks, the company will pay its obligations on time and in full. But if some external shock happens, which the company is unable to influence, it may find itself in an unstable position and refuse payments.
It is better for novice investors not to consider securities with a lower rating, so as not to lose money and not be disappointed in the stock market once and for all.
It is not necessary to waste time and select bonds with a high rating on the sites of rating agencies yourself. All the most reliable securities of stock exchanges are included in a special list - the first quotation list, or the first level of listing. These listings can be found on the specific exchange website.
Promotions
By themselves, stocks, unlike bonds, do not have credit ratings. Therefore, when choosing shares, you can look at the ratings of the companies that issued them. However, if a company regularly pays its debts (and therefore has a high credit rating), this does not mean that its business is steadily going uphill and its shares will rise in value.
In the case of stocks, it is better to look not only and not so much at the rating of the issuing company, as at the level of listing of these securities on stock exchanges.