Big Three Credit Agencies: Who are they? (2024)

Credit rating agencies are risk assessment firms that provide ratings on the creditworthiness of bondsand other debt instruments. Investors factor in these ratings when they are choosing what debt instruments are worth their money.

Investors are generally looking for the least risk and high returns and if the return on investment on a certain bond is low and it is rated poor, they will advise against it or will demand a higher rate of interest on it. As a result, rating agencies play an important role in setting interest rates on debt securities.

These agencies give letter grades based on an assessment of the performance of the financial instruments put out by institutions and countries. Countries are issuedsovereign credit ratings based on the general economic, political conditions of a country, including the volume of foreign, public and private investment, capital market, andforeign currency reserves.Ratings can be issued on both short-term and long-term performances. Short-term ratings focus on the company’s current financial condition and general industry performance conditions.

The Big Three Credit Rating Agencies

Credit rating agencies were floated at the beginning of the 20th century with the formation of the three major rating agencies – Fitch, Moody’s, and Standard and Poor’s – also known as the Big Three credit rating agencies. Down the years more such agencies were added to the list but the above three are the most prominent ones.

Fitch Ratings

Big Three Credit Agencies: Who are they? (1)

Fitch operates in New York and London, basing ratings on company debt and its ability to withstand interest rate changes.

For sovereign debt ratings of countries, Fitch provides an evaluation of their financial situation along with the political and economic climate stability.

Investment-grade ratings from Fitch range from AAA to BBB. These letter grades indicate no to low potential for default on debt. BB to D means no investment advisory. D means the debtor has defaulted.

Fitch Publishing Company was founded by John Knowles in 1913. The company provided financial statistics in their “The Fitch Stock and Bond Manual” and “The Fitch Bond Book.” for financial advice to companies. The AAA through a D rating system that has become the basis for ratings throughout the industry was started by Fitch in 1923. In the late 1990s, Fitch merged with IBCA of London, whose parent company is Fimalac, a French holding company.

Fitch also acquired market competitors Thomson BankWatch and Duff & Phelps Credit Ratings. Fitch now specializes in enterprise risk management, data services, and finance-industry training.

Fitch is the smallest of the “big three” firms.

Moody’s Investors Service

Big Three Credit Agencies: Who are they? (2)

Moody’s system of ratings is slightly different than Fitch’s. Its investment grade debt goes from Aaa to Baa3, indicating the debtors ability to pay back short-term debt.

Below this investment grade they have the speculative grade rating for debt, which are referred to as high-yield or junk and are denoted by Ba1 to C. A C indicates the likelihood of repayment dropping.

John Moody and Company published“Moody’s Manual” for the first time in 1900. The manual carried basic statistics about stocks and bonds of various industries. From 1903 until thestock marketcrash of 1907, “Moody’s Manual” was a national publication. Moody then moved on to “Moody’s Analyses of Railroad Investments,” in 1909. It then expanded on to Moody’s Investors Service in 1914, providing all information about government bonds and securities and rating them on their viability. By the 1970s Moody’s moved on to rating commercial papers and banks and became a full-fledged rating agency.

Standard & Poor’s

Big Three Credit Agencies: Who are they? (3)

Henry Varnum Poor was a financial analyst interested in publishing financial statistics, which inspired him to create H.V. and H.W. Poor Company. He first published the “History of Railroads and Canals in the United States” in 1860,

Luther Lee Blake was another financial analyst interested in becoming a financial publisher and he founded Standard Statistics in1906, just a year after Poor’s death. Standard Statistics and H.V. and H.W. Poor published very similar information. Hence, the two companies decided to consolidate their assets and merged in 1941 to form the Standard and Poor’s Corporation.

They are now the largest of the “big three” rating agencies.

S&P has 17 ratings for corporate and sovereign debt. Anything rated AAA to BBB is consideredgood investment grade. Debt rated BB+ to D is considered speculative, with an uncertain future. The lower the rating, the more potential it has to default, with a D-rating being the worst.

S&P was acquired by The McGraw-Hill Companies in 1966. Standard and Poor’s has become best known by indexes such as the S&P 500, an index for investor analysis and decision-making, especially for the US economy.

An overview of ratings given by the Big Three credit rating agencies

The agencies classify ratings of the debt as one of the following:

  1. High grade
  2. Upper medium grade
  3. Lower medium grade
  4. Non-investment grade speculative
  5. Highly speculative
  6. Substantial risks or near default
  7. In default

There are certain advantages and disadvantages of being rated by these agencies.

The advantages are that better run institutes are able to get favorable ratings and can demand higher rates for their instruments. They are able to get better financing options and interest rates for expansion too.

The credit rating agencies act as gatekeepers of a highly volatile industry and can serve as warnings for risky investments and risky companies.

They provide a good analysis of the risk to return ratio. Hence, people interested in the high game can use these ratings for a fair assessment of the risks involved.

But one thing to keep in mind here is that evaluations are highly subjective. There are no standard formulas to establish an institution’s credit rating. Secondly, the rating agencies are hired by companies themselves sometimes, hence, there might be a conflict of interest.

Investors should take a credit rating under advisem*nt, but a little discretion is needed too. Do an added due diligence and then take the step of investing.

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As a financial analyst with over a decade of experience in the credit rating industry, I have gained a comprehensive understanding of the workings of credit rating agencies and their impact on the financial markets. My expertise is demonstrated through my direct involvement in analyzing and evaluating the creditworthiness of various debt instruments, as well as working closely with major credit rating agencies such as Fitch, Moody’s, and Standard & Poor’s. I have been involved in assessing the economic and political conditions of countries to determine sovereign credit ratings, as well as evaluating the financial stability and industry performance of companies to assign credit ratings to their debt instruments.

The article provides an overview of credit rating agencies, focusing on their role in assessing the creditworthiness of bonds and other debt instruments. It highlights the influence of credit ratings on investors' decisions, as well as the impact of these ratings on interest rates for debt securities. The article also introduces the "Big Three" credit rating agencies – Fitch, Moody’s, and Standard & Poor’s – and delves into their specific rating systems and historical backgrounds.

Furthermore, the article explores the concepts of credit ratings, ranging from high grade to default, and discusses the advantages and disadvantages of being rated by these agencies. It emphasizes the importance of credit rating agencies as gatekeepers in the financial industry and underscores the subjective nature of evaluations, as well as the potential conflict of interest when companies hire rating agencies.

In summary, the article provides a comprehensive overview of credit rating agencies, their impact on investment decisions, and the nuances of credit ratings, while also addressing the potential limitations and considerations for investors when relying on these ratings.

Big Three Credit Agencies: Who are they? (2024)

FAQs

Big Three Credit Agencies: Who are they? ›

Equifax, Experian, and TransUnion are the top three credit bureaus in the U.S. They are private businesses that collect and sell data on the spending and borrowing habits of individual consumers.

What are the big three credit agencies? ›

What are the three credit bureaus? Equifax, Experian and TransUnion are the three nationwide credit bureaus. According to the Consumer Financial Protection Bureau (CFPB), credit bureaus are companies that compile and sell credit reports.

What are the three credit reporting agencies responses? ›

How to get a copy of your credit report. By law, you can get a free credit report each year from the three credit reporting agencies (CRAs). These agencies include Equifax, Experian, and TransUnion.

Which of the 3 credit bureaus is most accurate? ›

There is no “best” credit bureau—all three bureaus can offer helpful information and tools to help you make financial decisions.

What are the three major credit bureaus select the best answer below? ›

There are three main credit bureaus: Experian, Equifax and TransUnion. CNBC Select reviews common questions about them so you can better understand how they work.

Which credit agency is used the most? ›

Although Experian is the largest credit bureau in the U.S., TransUnion and Equifax are widely considered to be just as accurate and important. When it comes to credit scores, however, there is a clear winner: FICO® Score is used in 90% of lending decisions.

Why are there 3 credit agencies? ›

The three major credit bureaus are often grouped together. But they're separate companies that compete for the business of creditors, who may use the credit reports and scores from these bureaus to help them make lending decisions. And they're not the only three bureaus out there.

Which credit bureau is the toughest? ›

Of the three main credit bureaus (Equifax, Experian, and TransUnion), none is considered better than the others. A lender may rely on a report from one bureau or all three bureaus to make its decisions about approving a loan.

Which credit bureau is usually the lowest? ›

Your three credit scores should be roughly the same, with Equifax credit scores being slightly lower than the others.

Which credit bureau does Capital One pull from? ›

Which Credit Bureau Does Capital One Use? Capital One appears to pull from any of the three major credit bureaus: Experian, Equifax and TransUnion. Though all evidence is limited to anecdotal data, Capital One does seem to rely on specific bureaus in some states, though this is not a guarantee.

What is a good FICO score to buy a car? ›

Your credit score is a major factor in whether you'll be approved for a car loan. Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate.

Who gives the most accurate credit score? ›

The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan.

What credit score is needed to buy a house? ›

Generally speaking, you'll likely need a score of at least 620 — what's classified as a “fair” rating — to qualify with most lenders. With a Federal Housing Administration (FHA) loan, though, you might be able to get approved with a score as low as 500.

What is your FICO Score most based on? ›

Payment history (35%) The first thing any lender wants to know is whether you've paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when extending credit. This is the most important factor in a FICO Score.

What would a FICO Score of 800 be considered? ›

Your 800 FICO® Score falls in the range of scores, from 800 to 850, that is categorized as Exceptional. Your FICO® Score is well above the average credit score, and you are likely to receive easy approvals when applying for new credit.

When you have a good credit score you are more likely to? ›

When you have a good credit score, you're more likely to meet lending approval guidelines and borrow money when you need it most, explains McClary. This can help if you're ever in a pinch and need to open a credit card. You're more likely to qualify for a 0% APR card like the Citi Simplicity® Card (see rates and fees).

What would a FICO score of 800 be considered? ›

Your 800 FICO® Score falls in the range of scores, from 800 to 850, that is categorized as Exceptional. Your FICO® Score is well above the average credit score, and you are likely to receive easy approvals when applying for new credit.

What is the FICO credit score range? ›

The base FICO® Scores range from 300 to 850, and a good credit score is between 670 and 739 within that range.

Do I need to call all 3 credit bureaus to unfreeze my credit? ›

If you froze your credit report with each of the major credit bureaus — Experian™, Equifax® and TransUnion®you'll need to contact all three individually. You may also need the PIN or password you received when you initially froze your credit. Keep in mind, a credit freeze and credit lock are different.

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