What is Bank Credit Rating? How Banks are give Credit Ratings

Credit Rating generally belongs to two main types i.e. personal credit rating and bank credit rating. When an individual or business corporation wants a bank loan, the bank first checks customer’s credit ratings. The customer’s loan will be sanctioned on the basis of his/her earning, past financial records and character information.

Bank Credit Rating is different than the credit rating of a person and business firm. Standard & Poor’s, Fitch and Moody’s Investors Services are responsible organizations for issuance of bank ratings. These ratings are published online so that every customer and investor can see it for free. Bank Ratings are useful to know relevant bank’s financial strength.

What is Credit Rating?

Credit Rating is a grade issued to define financial strength of an individual or an organization. The credit rating can be issued for a person, business corporation and others.

What is Bank Credit Rating?

Bank Credit Rating is just another credit rating, but it is not related to any customer. The bank credit rating is issued to show any bank’s creditworthiness. Most banks and financial institutions of USA are included in the list bank credit rating.

Importance of Bank Credit Rating

Bank Credit Rating is important for big investors. If you are going to deposit millions of money in your bank account then you need to know the bank ratings of your selected bank. Regular customers don’t need to worry about bank credit rating. Because most bank deposits are insured by FDIC. The Federal Deposit Insurance Corporation provides insurance on deposits up to $250,000.

FDIC insured deposit means your deposit money are safe. No matter what credit rating your bank have, your money is completely protected. In case the bank defaults, you will get your deposit money from FDIC. The customers get up to $250,000 insured per depositor, per account.

How Bank Credit Ratings are Given

As we know how customer credit ratings are decided. You may want to know how banks are given credit ratings. Well, there are three authorized organizations which are entitled to give bank credit ratings to most banks and financial institutions. These three organizations are Standard & Poor’s, Fitch and Moody’s Investors Services.

The bank credit ratings are given as AAA, AA, A, BBB and further up to D. On the basis of credit ratings, you can decide your bank’s financial strength. Here we provide bank credit ratings and grade wise details as under:

Possibility of Timely Payment Description Standard and Poor’s Ratings Moody’s Ratings Fitch Ratings
Capacity to Make Payment in Given Time Limit: Extremely Strong AAA Aaa AAA
Very Strong AA Aa AA
Strong A A A
Adequate BBB Baa BBB
Vulnerability Level for Non-Payment of Deposit/Fund: Less Vulnerable BB Ba BB
More Vulnerable B B B
Currently Vulnerable CCC Caa CCC
Currently Highly Vulnerable CC CC
Default D C D

On the basis of above bank credit ratings, you come to know about your bank’s financial strength and creditworthiness. However, the best bank credit rating does not guarantee that the bank will not default. It only ensures that the bank has good financial strength and has good past payment record.

What is “Junk” in Bank Credit Rating?

When a bank is considered completely avoidable, it is rated as non-investment grade. This grade is also known as “Junk” Rating. Whenever you see any bank or financial institution with “Junk” Rating, you should simply stay way from it. Because the Junk explains everything about that bank’s financial strength and creditworthiness.

How Bank Credit Ratings Affect Loans and Lines of Credit

Generally, bank credit rating does not affect small loans given to individual customers. However, the credit ratings are effective for business loans of large amount. It may happen that the bank has to cut your line of credit because of a recent fall in its credit rating. The same way, large business loans are also affected by downfall in bank credit ratings.

Suppose you have taken a line of credit for some millions and your bank’s credit rating goes down the next year. In such circumstances, the bank has to cut your line of credit by applicable amount. Please note that it happens rarely and only when your bank’s credit rating goes down. It hardly happens with a reputed bank as they consistently work hard to maintain their financial strength to grow and delight customers.

Connection between Bank Credit Ratings and Bank Fraud

Bank Credit Ratings are given on the basis of bank’s capital, market value and past records. It simply shows an overview of bank’s ability to repay your money in time. However, bank credit rating is not 100% accurate or it does not give any guarantee of repayment of your money in prescribed time limit.

Bank Fraud is a different incident than bank credit rating. The process of issuing bank credit ratings does not consider the chances of bank fraud or data breaching. Bank Fraud can happen with any bank at anytime. However, the banks have made their rules so strict that earlier fraud techniques are not working anymore.

When we talk about bank fraud, it also includes online bank fraud. If your bank credit ratings are AAA, it does not mean that your bank account is safe from online hacking. You have to keep your bank account and login details confidential and contact your bank immediately if there’s any unauthorized transaction in your bank account.

Bank Credit Rating is useful to know bank’s creditworthiness, it means you can invest your money in that bank.

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