Economy and interest rates · updated October 21, 2026
What is a credit rating and how do you read grades like AAA, BBB or BB
A credit rating is the grade an agency gives a government or a company for how likely it is to pay its debts on time. The three big agencies are S&P, Moody's and Fitch. The best grade is AAA, and below BBB− starts the speculative zone, also called "junk".
How it works
The agencies look at debt, deficits, economic growth and political stability (for governments) or profit, debt and cash (for companies). The S&P and Fitch scale runs from AAA through AA, A and BBB, down to BB, B, CCC and D (default). Moody's uses different letters: Aaa, Aa, A, Baa, Ba. Each step also has a plus or minus (1, 2, 3 at Moody's). Alongside the grade, the agency gives an outlook: positive, stable or negative.
Worked example
Three steps on the S&P and Fitch scale.
The move from BBB− to BB+ is the most closely watched: many pension funds and insurers are not allowed to hold debt below BBB−, so they have to sell.
How to read a credit rating
Even the US is not AAA at every agency: S&P cut it to AA+ in 2011, Fitch in 2023 and Moody's in 2025. A downgrade below investment grade makes a country's borrowing more expensive and, with it, credit across the whole economy.
When a credit rating can fool you
The agencies get it wrong: before the 2008 crisis, many securities tied to mortgages were rated AAA and lost a lot. The rating lags the market: yields usually rise before the agency cuts the grade.
Related terms
Learn it in the Academy
Questions about a credit rating
What does investment grade mean?
Ratings from BBB− (or Baa3 at Moody's) upward. They are seen as suitable for cautious investors, such as pension funds.
What happens if a country's rating is cut?
The government borrows at higher rates, the currency may weaken and loan rates go up. If it falls below investment grade, some funds have to sell that country's bonds.
These explanations are for information only. They are not a recommendation to buy or sell.
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