‘#AskHansi’: What are credit rating agencies and how do they give credit ratings?

Yahoo, in association with Hansi Mehrotra, presents ‘#AskHansi’, a new series to help you get a better grasp of personal finance and how you can invest smartly.

Hansi Mehrotra, a CFA with global experience and founder of The Money Hans, is a celebrity in the world of personal finance in India. A powerful influencer on in the corporate/banking/finance circles. She creates fine personal finance content that simplifies complex issues into easy-to-understand stuff which lay people can identify with.

Credit rating agencies or CRAs are private firms that analyze the ‘creditworthiness’ of governments and businesses and give a credit rating.

They do that by studying the business, the industry and the financials of that business. To be able to do this rating, the CRAs have access to a lot more information than what is available publicly to equity analysts.They go inside the company and get access to that data.

Interestingly, they get paid by the very corporates that they analyzing, which create conflict of interest. This issue has been discussed many times in the last decade, but has not been resolved.

Also read/watch -

The role of credit rating agencies