Credit rating is an important tool for companies and investors to gain funds and earn profits on investments.
The benefits or advantages of a good credit rating to the investors and a company are numerous. It matters a lot when it comes to boosting confidence in investors to invest their money. A good credit score shows how much a company is financially strong and secure.
Importance of Good Credit Rating or Score
Better Investment Decisions
Good, average or bad credit rating gives an idea to the investors about the credibility of the issuer company (shares or bonds), and the risk factors attached to it. Higher the rating, the more will be the willingness of a person to invest in it and vice-versa.
Rating Review Benefits
The rating agencies regularly review the ratings given to a particular instrument or company and facilitate the investors to take wise decisions while investing their hard-earned money.
Due to the reliable ratings by rating authorities, it becomes easy for an instrument holder to decide whether to keep the instrument in which he or she has invested or to sell it.
If the ratings are constant or upgrade, the investors generally hold an instrument for good future return but a downgrade graph prompts them t sell it to avoid losses.
The rating agencies rank instrument basis the company ratings. For example, AAA, given by authorities like CRISIL, ICRA for investment instruments ensures the highest safety for investors, whereas D is for caution as there is less surety on returns and security of your investments.
Acts as an Assurance of Safety
High credit ratings act as a certificate of assurance for the investors as the probability of higher returns and the minimum risk exists. On the other hand, it brings good and timely funds to the company to promote its business and diversify.
Saves Time and Efforts
Credit score enables an investor to save time and effort on analyzing the growth prospects of their funds while selecting the best medium or instrument for making investments as they can depend on the ratings done by professional agencies and make decisions accordingly.
Better Corporate Identity
Good credit rating helps a company to boost its market value and image and create trust and goodwill amongst the financial institutions as well as investors. This helps a company to get business loans at a better rate of interest and longer duration to expand and grow from respective banks and investments done by the general public.
Marketing and Branding Tool
Credit rating not only helps to develop a good image of the company among the investors but also the customers, dealers, suppliers, etc.
High credit rating can act as a marketing tool to develop confidence in the minds of customers, dealers, suppliers, etc. If the credit rating is good, the public will invest in these companies, even if they do not know these companies.
A company with an excellent credit rating or a higher rated instrument saves on advertising as people keep a watch on such types of companies and invest whenever they get a chance to do so and the company has to do minimal expenses on advertising and communications.
Beneficial to Brokers
Highly rated instruments put the brokers, financial intermediaries and agents at an advantage to make fewer efforts in convincing their clients to invest in a particular company. Also, it raises the goodwill of the company amongst the entire business fraternity.
Motivation to Grow
A good rating motivates the company for further growth and advancement via new projects.
Many companies rely on foreign investors to purchase their debt or to diversify, and these foreign investors rely heavily on the credit ratings achieved by the companies seeking investment.
Credit rating enables a company to grow and expand its business and garner a better chance for investors to earn good returns on their investments. It is a mechanism to judge the reliability and viability of a company and an investment instrument.