What Are Bond Ratings? How Do They Work?

What Are Bond Ratings? How Do They Work?

BOND RATINGS ARE independent, forward-looking opinions on the creditworthiness of a bond issuer. They are for bonds and bond issuers what credit scores are for humans. Just as credit bureaus evaluate your assets and liabilities, such as income and debt, bond rating agencies will look at an issuer's balance sheet to determine its ability to repay its obligations on time and in full.

And just like credit scores are intended to communicate your creditworthiness to potential creditors, bond ratings are intended to communicate the creditworthiness of issuers to potential creditors – in this case, investors like you.

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