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Credit Rating Scales Explained: AAA to D

AAA, BBB-... what do the letter grades that show up in the news actually mean?

The world's three major credit rating agencies

S&P, Moody's, and Fitch are the best-known credit rating agencies, assessing the ability of governments and companies to repay their debts and assigning ratings accordingly.

S&P and Fitch's scale (AAA to D)

S&P and Fitch both rate from AAA at the top, down through AA, A, BBB, BB, B, and CCC, to D at the bottom, which signals default. Plus and minus signs (like BBB+ or BBB-) further subdivide each tier.

Moody's scale (Aaa to C)

Moody's rates from Aaa at the top, down through Aa, A, and Baa, using a different letter case convention from S&P and Fitch. Within each letter tier, the numbers 1, 2, and 3 further subdivide it (1 being the highest), so Aa1 ranks above Aa2.

Where investment grade ends and junk bonds begin

A rating of BBB- or higher from S&P and Fitch, or Baa3 or higher from Moody's, is classified as investment grade; anything below that line is speculative grade.

A lower rating generally means a higher borrowing cost

Bonds below the investment-grade line are commonly called high-yield bonds or junk bonds -- they carry a higher risk of default, which is why they typically offer a higher yield to compensate. Many institutional investors, like pension funds and insurers, are restricted by internal rules to holding only investment-grade bonds, so a downgrade below that line can trigger forced selling.

Sovereign and corporate credit ratings are separate things

A sovereign credit rating assesses a government's ability to repay its own debt, while a corporate credit rating assesses an individual company's ability to repay its own. As a general rule, a company is unlikely to be rated higher than the sovereign rating of the country it's based in.

Worth pairing with the basics of bond investing

Credit ratings are closely tied to bond investing generally -- a lower-rated issuer typically has to offer a higher yield to attract buyers, which is why credit rating and yield tend to move in opposite directions for otherwise similar bonds.

General information, not investment advice

This page provides general information about how the credit rating scale works and is not a recommendation regarding any specific country, company, or security. Check each rating agency's official releases for a specific issuer's current rating at any given time.

Frequently Asked Questions

Does a credit rating downgrade affect a company's stock price too?

Directly, it mainly raises borrowing costs and financing costs. But that can indirectly weigh on the stock as well, since higher financing costs often raise concerns about future earnings.

Do individual countries have their own domestic rating agencies too?

Yes -- many countries have local credit rating agencies that rate domestic companies and bonds alongside the three global majors, generally using a similar letter-based scale adapted to that market.