Credit Rating Law and Legal Definition

Credit rating is the process of evaluating a potential borrower's ability to repay debt. It is prepared by an authorized credit bureau on the request of the proposed lender based on the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. Credit rating gives an idea of the credit worthiness of an individual or other entity. Credit rate is calculated from financial history and current assets and liabilities. Recently, credit rating is also being used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit. A poor credit rating projects high risk of defaulting on a loan and may lead to refusal of a loan or high interest rates.