Credit rating agencies are companies that assess the financial strength of companies and government entities, especially their ability to meet principal and interest payments and the likelihood of default. They provide credit ratings, which are independent assessments of a debtors ability to pay back debt. Credit ratings are assigned to debt securities like bonds, notes, and other debt instruments, as well as to companies and governments. The ratings are given as letter grades, ranging from A at the top to C or D at the bottom. The three largest credit rating agencies are Moodys, Standard & Poors, and Fitch Ratings, which control nearly the entire credit rating market.

Credit rating agencies use analytical models, assumptions, and expectations to assess the creditworthiness of a debt instrument or obligor. They evaluate the credit risk of specific debt securities and the borrowing entities. The ratings provided by credit rating agencies are used by investors to determine whether to buy or not to buy a companys securities. Banks also use credit ratings to determine the risk premium to be charged on loans and bonds. A poor credit rating shows that the loan has a higher risk premium, and this prompts an increase in the interest charged to individuals and entities with a low credit rating.

Credit rating agencies are regulated by the Securities and Exchange Commission (SEC) in the United States. The SEC recognizes the largest and most credible agencies as Nationally Recognized Statistical Rating Organizations (NRSROs) and relies on such agencies exclusively for distinguishing between grades of creditworthiness in various regulations under federal securities laws. The Credit Rating Agency Reform Act of 2006 created a voluntary registration system for CRAs that met certain minimum criteria and provided the SEC with broader oversight authority.

State and local governments often engage one or more credit rating agencies with respect to the issuance of debt. Obtaining one or more credit ratings may provide a material benefit to an issuers cost of borrowing. The Government Finance Officers Association (GFOA) recommends that issuers evaluate the need for obtaining one or more credit ratings and develop appropriate policies and procedures for selecting and managing credit rating agencies.