Standard & Poor’s Credit Ratings Definitions & FAQs

Credit ratings are forward-looking opinions about credit risk. Standard & Poor’s credit ratings express the 

agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city 

government, to meet its financial obligations in full and on time.

Credit ratings can also speak to the credit quality of an individual debt issue, such as a corporate note, a 

municipal bond or a mortgage-backed security, and the relative likelihood that the issue may default.

Ratings are provided by organizations such as Standard & Poor’s, commonly called credit rating agencies, 

which specialize in evaluating credit risk.

Each agency applies its own methodology in measuring creditworthiness and uses a specific rating scale to 

publish its ratings opinions. Typically, ratings are expressed as letter grades that range, for example, from 

‘AAA’ to ‘D’ to communicate the agency’s opinion of relative level of credit risk.

For more information view the detailed Ratings Definitions

What do the letter ratings mean? 

Are Credit Ratings indicators of investment merit?

Why do Credit Ratings change?

Are Credit Ratings absolute measures of default probability?

What do the letter ratings mean?

The general meaning of our credit rating opinions is summarized below. 

‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.

‘AA’—Very strong capacity to meet financial commitments.

‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic 

conditions and changes in circumstances.

‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.

‘BBB-‘—Considered lowest investment grade by market participants.

‘BB+’—Considered highest speculative grade by market participants.

‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial 

and economic conditions. 

‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to 
meet financial commitments. 

‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet 

financial commitments.

‘CC’—Currently highly vulnerable.

‘C’—Currently highly vulnerable obligations and other defined circumstances.

‘D’—Payment default on financial commitments.

Note: Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show 

relative standing within the major rating categories. 

Specific ratings are also available from Standard & Poor’s Ratings Desk by 

emailing ratings_request@standardandpoors.com.

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Are Credit Ratings indicators of investment merit?

While investors may use credit ratings in making investment decisions, Standard & Poor?s ratings are NOT 

indications of investment merit. In other words, the ratings are not buy, sell, or hold recommendations, or a 

measure of asset value. Nor are they intended to signal the suitability of an investment. They speak to one 

aspect of an investment decision—credit quality—which in some cases, may include our view of what 

investors can expect to recover in the event of default. 

In evaluating an investment, investors should consider, in addition to credit quality, the current make-up of 

their portfolios, their investment strategy and time horizon, their tolerance for risk, and an estimation of the 

security's relative value in comparison to other securities they might choose. By way of analogy, while 

reputation for dependability may be an important consideration in buying a car, it is not the sole criterion on 

which drivers normally base their purchase decisions. 

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Why do Credit Ratings change?

The reasons for ratings adjustments vary, and may be broadly related to overall shifts in the economy or 

business environment or more narrowly focused on circumstances affecting a specific industry, entity, or 

individual debt issue. 

In some cases, changes in the business climate can affect the credit risk of a wide array of issuers and 

securities. For instance, new competition or technology, beyond what might have been expected and 
factored into the ratings, may hurt a company's expected earnings performance, which could lead to one or 

more rating downgrades over time. Growing or shrinking debt burdens, hefty capital spending requirements, 

and regulatory changes may also trigger ratings changes. 

While some risk factors tend to affect all issuers—an example would be growing inflation that affects interest 

rate levels and the cost of capital—other risk factors may pertain only to a narrow group of issuers and debt 

issues. For instance, the creditworthiness of a state or municipality may be impacted by population shifts or 

lower incomes of taxpayers, which reduce tax receipts and ability to repay debt.

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Are Credit Ratings absolute measures of default probability?

Since there are future events and developments that cannot be foreseen, the assignment of credit ratings is 

not an exact science. For this reason, Standard & Poor’s ratings opinions are not intended as guarantees of 

credit quality or as exact measures of the probability that a particular issuer or particular debt issue will 

default.

Instead, ratings express relative opinions about the creditworthiness of an issuer or credit quality of an 

individual debt issue, from strongest to weakest, within a universe of credit risk. The likelihood of default is 

the single most important factor in our assessment of creditworthiness.

For example, a corporate bond that is rated ‘AA’ is viewed by Standard & Poor’s as having a higher credit 

quality than a corporate bond with a ‘BBB’ rating. But the ‘AA’ rating isn’t a guarantee that it will not default, 

only that, in our opinion, it is less likely to default than the ‘BBB’ bond.

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