What are the benefits of credit ratings? Credit rating is a vital tool for companies and investors in gaining funds and earning profits on investments. There are numerous Benefits of Credit Ratings of a good credit rating to investors and companies as well. Credit rating plays a role when it comes to helping investors to invest their money.
What Are the Benefits of Credit Ratings?
Benefits of Credit Rating to Investors
Assurance of Safety
Investors want to be assured that they are right. Thus high credit rating gives them that assurance about the safety of the tool and risk of debt. Companies with a high rating for their instruments, try to maintain discipline. This in turn protects them from bankruptcy, so the investors are protected.
Saves Investor’s Time and Effort
With credit ratings, an investor can save time and effort in analyzing the financial strength of an issuer company. This is a result of the investor depending on the rating done by a rating agency, in order to make a decision. The investor no longer needs to waste time and effort in checking the financial information about the credit standing of the issuer company.
Choice of Instruments
With the credit rating, an investor can choose a particular instrument from many alternatives available. This choice however depends upon the safety of the risk of the instrument.
Helps in Investment Decision
Credit rating gives an investor more insight into the credibility of the issuer company and the risk factor attached to a particular instrument. Thereafter, investors can then decide whether or not to invest in such companies.
Regularly, the rating agency reviews the rating given to a particular instrument. This is to help the present investors in deciding whether to keep the instrument or to sell it.
Better Understanding of Investment Proposal
The rating agencies give rating symbols to the instruments so that it can be easily understood by investors. This helps investors in understanding the investment proposal of an issuer company.
Benefits of Credit Rating to Company
Ideal for Non-Popular Companies
Credit rating is good to the closely-held companies. Where the credit rating is good, the public will invest in these companies, even if the companies are not known.
Improves Corporate Image
A credit rating helps in improving the corporate image of a company. High credit ratings will create confidence and trust in the minds of the investors about the company. Thus the company will enjoy a good corporate image in the market.
Lowers Cost of Borrowing
Companies with high credit ratings for their debt instruments will get funds at lower costs from the market. A high rating will enable the company to offer low-interest rates on fixed deposits, debentures as well as other debt securities. Investors, on the other hand, will accept low-interest rates because they prefer low-risk instruments.
Wider Audience for Borrowing
Companies with high ratings for their instruments can get a wider audience for borrowing. They can approach financial institutions, banks, and investing companies. This is as a result of the credit ratings being easily understood not only by the financial institutions and banks but by the general public as well.
Helps in Growth and Expansion
A credit rating helps a company to grow and expand. This is because a better credit rating enables a company to gets finance easily for growth.
Acts as a Marketing Tool
Not only does credit rating help to develop a good image of the company among investors, but it also helps to build a good image among customers, dealers, suppliers, etc. High credit rating can also act as a tool in helping the minds of customers and many more.