Series 79: Credit Ratings

Taken from our Series 79 Top-off Online Guide

Credit Ratings

Various credit rating agencies (which are required to register with the SEC) analyze and rate the creditworthiness of corporate bond issuers. A higher credit rating means a lower risk of default, which generally translates to a lower interest rate that the issuer must pay to entice bond purchasers. The bonds of issuers with acceptable or better credit ratings are considered investment grade.

The three main credit rating agencies are Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s), and Fitch Ratings (Fitch). Nationally recognized rating agencies are required to register with the SEC.

These agencies rank investment grade corporate bonds as follows:

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Investment Grade

Moody’s

S&P

Fitch

Investment Grade /
Ability to Meet Obligations

Aaa

AAA

AAA

Highest quality, minimum credit risk

Aa1

AA+

AA+

Aa2

AA

AA

High quality, low credit risk

Aa3

AA-

AA-

A1

A+

A+

A2

A

A

Upper medium

A3

A-

A-

Baa1