Big Three (credit rating agencies)
So imagine you're trying to decide which toy to play with. You might ask your friends or parents for their opinions so you can make the best choice. In a way, that's what companies do when they want to borrow money from investors. They get opinions from these big companies called credit rating agencies.
The big three credit rating agencies are like toy judges. They look at how well a company has been behaving with its money, just like your parents might look at how well you've been behaving before letting you borrow a toy. The three main agencies are called Standard & Poor's (S&P), Moody's, and Fitch.
When a company wants to borrow money by selling bonds, it hires one or more of these credit rating agencies to give its bonds a rating – like a score – based on how risky it is to lend the company money. These ratings range from AAA, the safest, to D, the riskiest.
Investors use these ratings to decide if they want to buy the company's bonds. They might be more willing to lend money to a company with a higher rating because it means the company is less likely to have problems paying back the borrowed money. It's kind of like you being more willing to lend your toy to a friend who you trust won't break it.
That's why the big three credit rating agencies are so important in the world of finance. Companies rely on their ratings to borrow money, and investors rely on those ratings to make informed decisions about where to invest their money.
The big three credit rating agencies are like toy judges. They look at how well a company has been behaving with its money, just like your parents might look at how well you've been behaving before letting you borrow a toy. The three main agencies are called Standard & Poor's (S&P), Moody's, and Fitch.
When a company wants to borrow money by selling bonds, it hires one or more of these credit rating agencies to give its bonds a rating – like a score – based on how risky it is to lend the company money. These ratings range from AAA, the safest, to D, the riskiest.
Investors use these ratings to decide if they want to buy the company's bonds. They might be more willing to lend money to a company with a higher rating because it means the company is less likely to have problems paying back the borrowed money. It's kind of like you being more willing to lend your toy to a friend who you trust won't break it.
That's why the big three credit rating agencies are so important in the world of finance. Companies rely on their ratings to borrow money, and investors rely on those ratings to make informed decisions about where to invest their money.