INTRODUCTION

Credit rating assesses the credit worthiness of an individual, corporation or even a country. It is calculated from the financial history and current assets and liabilities. A rating agency collects qualitative and quantitative data from the company which has to be rated and assesses the relative strength and capacity of a company. The rating is given on the judgment of a team of experts from the agency. The rating of a company is a financial indicator to potential investors of debt securities such as the bonds. It is an assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. The rating are expressed alphabetically, numerically, alpha numerically or even symbolically on the basis of the information provided by the client.

DEFINITION:

According to CRISIL, Credit rating is an unbiased and independent opinion as to issuers capacity to meet its financial obligations. It does not constitute a recommendation to buy or sell or hold a particular security. According to Moodys, ratings are designed exclusively for the purpose of grading bonds according to their investment qualities. Credit Rating

A credit rating is an evaluation of the credit worthiness of a debtor, especially a business (company) or a government, but not individual consumers. The evaluation is made by a credit rating agency of the debtor's ability to pay back the debt and the likelihood of default.[3] Evaluations of individuals credit worthiness is known as credit reporting and done by credit bureaus, or consumer credit reporting agencies, which issue credit scores.Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies' analysts.Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations.A poor credit rating indicates a credit rating agency's opinion that the company or government has a high risk of defaulting, based on the agency's analysis of the entity's history and analysis of long term economic prospects.

FUNCTIONS OF CREDIT RATING 1. Superior Information Rating by an independent firm offers a superior and more reliable source of information on credit risk for three inter related risks.

2. Low Cost Information A rating firm which gathers, analyses, interprets and summaries complex information in a simple and readily understood format for wide public consumption represents a cost effective arrangement.

3. Basis for proper Risk-return Trade off If debt securities are rated professionally and if such ratings enjoy widespread investor acceptance and confidence, a more rational risk-return tradeoff would be established in the capital market.

4. Healthy Discipline on Corporate Borrowers Public exposure has healthy influence over the management of issuer because of its desire to have a clear image.

5. Formulation of public policy guidelines on institutional investment The public policy on the kinds of securities that are eligible for inclusion in different kinds of institutional portfolios can be developed with great confidence if securities are rated professionally by independent agencies.

6. Indication of Risk Through the study of credit rating, the investors can assess the degree of default risk involvement in the financial instrument issued by the company.

7. Gradation Credit rating is designed for the purpose of grading the bonds in accordance with their investment quality.

8. Assessment of Solvency Credit rating estimates or assesses the values of credit instruments by applying specialized and expert knowledge to assess the solvency position of the borrower or issuer of the credit instrument.

9. Symbolization The companies or borrowers whose credit are rated by the credit rating agencies are expressed through certain predefined symbols, such as, AAA, AA, A, A+, BBB, BB, B+, C, D, etc. These symbols indicate the ability of the company or borrower to repay its debt.

10. Assessment of Credit Worthiness

The creditworthiness and reliability of the obligator are made available to the investors or lenders by credit rating. Evaluation Activities A statewide evaluation of the Comfort Partners Program is a goal in the program that was approved by the BPU in its Decision and Order of August 15, 2001. The key objective of the evaluation is to determine how well program goals are being met and to recommend program refinements that will allow for improved attainment of program goals. The Working Group proposed Process, Energy Impact, and Affordability Evaluations in order to meet the evaluation objectives. The Process Evaluation assessed the programs design and delivery, and the usefulness and quality of services. It provides context for the interpretation of the Energy Impact and Affordability findings. Five tasks were included in the Process Evaluation to meet these objectives. Task 1 Core Program Operations and Costs: Due to the participation of seven utilities, two implementation contractors, and two quality control inspectors, the Comfort Partners Program is administratively complex. Effective and efficient procedures for program operations are crucial to program success. The purpose of this task was to develop a detailed understanding of how the program is designed to operate, to assess whether it is operating according to the prescribed guidelines, to identify organizational barriers to program effectiveness, and to capture information on program costs. There were five activities included in this task:Process Evaluation Findings The Working Group and the seven member utilities faced great challenges in implementing the Comfort Partners Program within sixty days following the BPU order. While some of the utilities had previous comprehensive low-income usage reduction programs, these programs had implementation procedures that were significantly different from one another. Additionally, some of the utilities did not have experience with such a complex program prior to Comfort Partners. The Working Group resolved many issues to develop a coordinated statewide low-income usage reduction program. These issues included development of uniform program procedures, agreement on cost-sharing procedures, agreement on contractors and statewide pricing, and program training. The program was implemented, as required, within sixty days after the BPU's order. While many accomplishments were made, there are several areas of the program that need improvement. 1) Program achievements are extensive: As noted above, the Comfort Partners Program was successfully implemented within the time frame set by the BPU. The Working Group made many important decisions and pushed the program forward in order to achieve this goal. HDMC's administrative systems were instrumental to the utilities being able to implement the program. JCP&L's system allowed for their program implementation, and has provided them with the added benefit of direct access to customer information. Utilities have successfully provided the implementation contractors with the information necessary to serve the customers, and the implementation contractors have implemented the new program procedures. Many of the utilities met their 2001 goal for production.

2) Improvements over the E-TEAM Partners Program: APPRISE has noted significant improvements in the Comfort Partners Program over PSE&G's previous E-TEAM Partners Program. These include improvements in: Program specification and documentation Tools that allow field staff to select and prioritize measures Communication between service delivery staff and customers Communication among auditors, measure crews, and insulation crews Allocation of responsibility between insulation crews and measure crews Average time to complete service delivery

Data tracking systems Reporting and invoicing systems Quality control systems 3) Uncertainty of future program administration: Achievement of program goals has been impacted by the uncertainty of how the program will be administered in the future. The Collaborative has been reluctant to make long-term commitments with current contractors and to hire additional contractors to help meet program production goals. The installation contractors have been reluctant to purchase additional trucks and hire new staff. The uncertainty is also impeding the Collaborative's implementation of a statewide tracking system and their long-term planning process, including working with State Weatherization Assistance Program providers. 4) Production rates: While many of the utilities met their 2001 production goal, this was due to an intense effort by HDMC to begin service delivery for many customers at the end of 2001. As a result, the beginning part of 2002 was used to complete the services for these customers. Therefore, at the midpoint of the year, analysis of program data shows that the production goal is not being achieved. In order to meet the annual production goal of over 6,000 homes, HDMC will have to significantly ramp up services in the next few months. 5) Training: Review of training materials, attendance at the education training, observation of service delivery, and customer interviews show that program and education training were not sufficient to provide technicians with complete information and instruction on program procedures. Additional training in measure and education procedures is needed. 6) Targeting: Some of the utilities are targeting high use customers. Barriers to targeting these customers include the fact that customers requesting services must be served, high electric users may not be high gas users and vice versa, and the market for some of the utilities may be saturated. 7) Recruitment and outreach: Observation of recruitment and enrollment, and interviews with customers showed that marketing and enrollment staff are not initiating the partnership with the customer. The customer receives only limited program information at the time of enrollment. 8) Education: Education is an integral component of the Comfort Partners Program. Technicians must communicate with the customer to understand usage in the home and to identify opportunities for reducing energy usage. The technician must furnish the customer with an understanding of the program and the measures, and assist the customer in discovering his or her self-interest for reducing energy usage. APPRISE undertook many research activities in order to assess the implementation of education as part of the Comfort Partners Program. These activities included on-site.

observation of service delivery, interviews with program participants, and review of education forms used in delivery. During the observations, we found that education protocols were not completely and consistently followed. The auditors generally did a good job of educating the customer during the walk through about the work that was being done and potential energy-saving actions. However, the auditors were less consistent in providing education at the introduction and conclusion of the visit. The approach used was generally not successful in establishing and confirming the partnership with the customers. During customer interviews, we found that customers did not understand the partnership or their responsibility for reducing energy usage. The following elements of the education implementation need to be improved: Partnership agreement: The partnership nature of the program should be explained at the beginning of the visit. This should include an explanation of the fact that both the utility and the customer have responsibilities in the program, and that one of the customer's responsibilities is to take actions to reduce energy usage. Energy education notebook: The auditor should use the energy education notebook to explain the program and energy use in the home. Explaining the steps of weatherization: At the beginning of the visit, the auditor should explain the steps of weatherization, including intake/eligibility, the energy survey, energy education, installation, inspection, and follow-up. Reviewing and explaining bills: At the beginning of the visit, the auditor should request a copy of the customer's bills, explain how to read the bills, and discuss the customer's usage. Co-developing an action plan: The auditors should work with the customer to determine the high energy users in the home, and the actions that the customer is willing to take to reduce energy use. The auditor should develop a written action plan with the customer that lists the actions that the customer has committed to take. Summarizing and reviewing and encouraging the customer's active participation: At the end of each visit, the auditor should review the work that was done on the home, any actions that the customer needs to take to maintain the work, the energy-saving actions the customer has committed to take, and other commitments the customer has made. The auditor should also explain other visits that the customer will receive and what the customer should expect to happen during these visits. 9) Quality control: Third party quality control contractors reported that they do not randomly select jobs for inspection. On the jobs they do inspect, they check for health and safety problems, comprehensive measure selection, and quality of installation. They also provide some customer education.

10) Effect of the program: The Comfort Partners Program appears to have positively impacted the customers. Thirty-six percent of the customers surveyed in the quantitative interviews felt that their bills had already declined since receipt of program services. Fifty-four percent felt that their home is more comfortable, sixty-eight percent felt that the home is warmer in the winter, sixty-seven percent felt that the home is less drafty in the winter, and seventy-three percent felt that the home is more comfortable in the summer since receiving program services. 11) Customer satisfaction: Most of the customers expressed very positive feelings toward the providers who came to their homes. Almost all of the customers stated that the providers were on time, knowledgeable about energy use, responsive to questions, and courteous and professional. Almost all of the customers were very satisfied with the work done on the home. The customers stated that the providers were neat and considerate of their homes. Eighty-six percent were very satisfied with measures, ninety percent were very satisfied with the education, and eighty-eight percent were very satisfied overall. 12) Arrearage reduction: Interviews with the utilities revealed that the utilities have different arrearage programs and different management procedures. Substantial progress was made in getting these complex programs up and running in a short time period. Many of the utilities use some manual systems for implementing the program. HDMC provides intake for all of the utilities except JCP&L. During observation of customer intake, HDMC technicians did not provide information on how other low-income assistance payments would be credited to the customer's account if the customer participated in the program. Process Evaluation Recommendations There are many recommendations for program improvement. These recommendations, relating to program administration; staff training; targeting, recruitment, and outreach; service delivery; quality control; and the Arrearage Reduction component, are summarized below. Recommendations for Program Administration The two main goals of the evaluation of administrative functions are to determine how utility program administration and delivery contractor administration facilitate efficient and effective service delivery. Several evaluation activities have provided information on program administration. These activities included interviews with utility managers and staff, interviews with service delivery contractor management and staff, review of data collection forms, and observation of program processes, both at JCP&L and HDMC.TO INVESTORS

1. Low cost information

It is a source of low cost information to the investors. 2. Quick investment decision

In the present day complex world ratings enables investors to take quick decisions based on ratings. Independent investment decision: For rated instrument, investors need not depend upon the advice of the financial intermediaries. 3. Investor protection

Hiring of credit agencies imply that the management of the company is ready to show its operations for independent scruting. So the investors who are not provided with confidential information can have overall assessment based on ratings.

TO THE RATED COMPANIES

1. Sources of Additional Certificate Credit rating agency provides additional information to the issuers of debt/ financial instruments. A highly rated firm can enter the market with great confidence. Indian experience shows that use of rating, benefit a great deal by getting larger amount of money from a wider audience at lower cost. 2. Increases Investors Population

A sound credit rating system gives an alternative method to name recognition as a determining factor in making investment and helps increase the population of those investing in debt obligations. 3. Forewarns the Risk

Credit rating acts as a guide to the companies which get a lower rating. 4. Encourages Financial Discipline

Ratings also encourage discipline among corporate borrowers to improve their financial structure and performance. 5. Rating as a Marketing Tool Companies with rated instruments use rating as a marketing tool to create image in dealing with their customers, lenders and borrowers.

6. Low Cost of Borrowing A company with higher rated instrument has the opportunity to reduce the cost of borrowing by quoting lesser interest rate on fixed deposits or debentures as the investors with low risk preference would invest in safe securities through yielding low rate of return.

Companies with rated instruments use rating as a marketing tool to create image in dealing with their customers, lenders and borrowers.

LIMITATIONS OF CREDIT RATING

There are several limitations of credit ratings. 1. Credit rating are changed when the agencies feel that sufficient changes have occurred. The opinions of rating agencies may have an adverse impact on asset quality of the issuer. 2. the use of credit rating imposes discrete categories on default risk, while, in reality default risk is a continuous phenomenon. 3. owing to time and cost constraints, credit ratings are unable to capture all characteristics for an issuer and issue. 4. The absence of widespread branch network of the rating agency may limit its skills in rating. 5. Inexperienced, unskilled or overloads staff may not do justice give their job and the resulting rating may not be perfect. 6. Since the rating agencies receive a sizable fee from the companies for award in rating, a tendency to inflate these rating may develop. 7.The time factor greatly affects the rating and gives misleading conclusions. 8. Borrowing entities may give misleading advertisements about the rating symbols to their instruments.

CREDIT RATING PROCESS The rating process takes about three to four weeks, depending on the complexity of the assignment and the flow of information on the client. Rating decisions are made by the Rating Committee. The rating assigned is communicated to the client along with a detailed rationale. The rating accepted by the clients are published and then monitored on a continuous basis over the life of the instrument. CARE has a comprehensives and companies operating in these industries. Each rating is reviewed formally at least once a year, when analysts meet the issuers management. A review can also be triggered by a major development in the company or in the industry, which may have a significant bearing on the credit-worthiness of the company. As a part of the review exercise, actual financial performance is analysed in the light of the estimates made earlier and deviation are examined. CARE puts the rating under Credit Watch, when any event or deviation from the expected trend has occurred or is expected and additional information is necessary to take rating action. The rating may be retained, upgraded or downgraded based on the changed prospects for the issuer. A rating change is at the absolute discretion of CARE, without concurrence of the client.

6. Low Cost of Borrowing

A company with higher rated instrument has the opportunity to reduce the cost of borrowing by quoting lesser interest rate on fixed deposits or debentures as the investors with low risk preference would invest in safe securities through yielding low rate of return. Credit Evaluation ProcedureThe advanced standing granted to students transferring from other colleges and universities is determined through an official evaluation by the University. The student must clearly understand that this evaluation will be final, and acceptance of an offer of admission signifies acceptance that the University will determine the student's advanced standing. Students admitted with advanced standing are, in general, given credit for college-level courses from degree granting, regionally accredited institutions Insofar as such courses correspond in content and quality to subjects required for the degree sought at Coppin State University.The letter of admission for a transfer applicant includes the estimated number of credits transferable to Coppin State. The evaluation is usually (but not always) preliminary in nature, as the student is usually taking additional courses at the time of admission. A final evaluation of credit will be prepared once the final grades for the most current semester are received in official transcript form from the student's former college or university. All final transcripts are due in the Admissions Office prior to the student's enrollment date. The appropriate cumulative average, as determined by the number of credits completed, and good academic standing must be maintained, however, or the University's offer of admission will be withdrawn.Upon receipt of a final evaluation, the transfer student should review its contents carefully. If the student has any questions or feels there is an error, the Admissions Office must be advised within the first semester. No changes will be made to the transfer evaluation after the first semester of enrollment.Community college transfer students have the option of either following the catalog that was in effect at the time they were initially admitted as degree candidates at their previous accredited transfer institution, or they can adhere to the catalog assigned on the Evaluation of Transfer Credit. However, the first alternative is available only if no more than (6) six years have elapsed at Coppin State University from the date of initial college matriculation.Transfer credit shall be allowed for all academic courses completed at any regionally accredited two or four-year college or university. Career, occupational, terminal or other courses not offered at the University will be accepted for transfer credit if approved by the appropriate department of the University or by the admissions office. In any event, these courses, if accepted, will be accepted as free elective credit with the exception of orientation, remedial, review, or specialized/personal development courses, which are generally not transferable. Additionally, transfer students must satisfy all established general university, major departmental, and upper-level requirements for graduation.Any student admitted to degree candidacy as a transfer student must maintain the appropriate cumulative average and remain in good academic standing through the most recent semester in attendance at his or her previous institution. Failure to meet this requirement will result in the cancellation of the University's original offer of admission and in the forfeiture of all related fees and privileges.

CREDIT EVALUATIONCredit evaluation and approval is the process a business or an individual must go through to become eligible for a loan or to pay for goods and services over an extended period. It also refers to the process businesses or lenders undertake when evaluating a request for credit. Granting credit approval depends on the willingness of the creditor to lend money in the current economy and that same lender's assessment of the ability and willingness of the borrower to return the money or pay for the goods obtainedplus interestin a timely fashion. Typically, small businesses must seek credit approval to obtain funds from lenders, investors, and vendors, and also grant credit approval to their customers.EVALUATING CREDIT WORTHINESSIn general, the granting of credit depends on the confidence the lender has in the borrower's credit worthiness. Credit worthinesswhich encompasses the borrower's ability and willingness to payis one of many factors defining a lender's credit policies. Creditors and lenders utilize a number of financial tools to evaluate the credit worthiness of a potential borrower. When both lender and borrower are businesses, much of the evaluation relies on analyzing the borrower's balance sheet, cash flow statements, inventory turnover rates, debt structure, management performance, and market conditions. Creditors favor borrowers who generate net earnings in excess of debt obligations and any contingencies that may arise. Following are some of the factors lenders consider when evaluating an individual or business that is seeking credit:Credit worthiness. A history of trustworthiness, a moral character, and expectations of continued performance demonstrate a debtor's ability to pay. Creditors give more favorable terms to those with high credit ratings via lower point structures and interest costs.Size of debt burden. Creditors seek borrowers whose earning power exceeds the demands of the payment schedule. The size of the debt is necessarily limited by the available resources. Creditors prefer to maintain a safe ratio of debt to capital.Loan size. Creditors prefer large loans because the administrative costs decrease proportionately to the size of the loan. However, legal and practical limitations recognize the need to spread the risk either by making a larger number of loans, or by having other lenders participate. Participating lenders must have adequate resources to entertain large loan applications. In addition, the borrower must have the capacity to ingest a large sum of money.Frequency of borrowing. Customers who are frequent borrowers establish a reputation which directly impacts on their ability to secure debt at advantageous terms.Length of commitment. Lenders accept additional risk as the time horizon increases. To cover some of the risk, lenders charge higher interest rates for longer term loans.Social and community considerations. Lenders may accept an unusual level of risk because of the social good resulting from the use of the loan. Examples might include banks participating in low-income housing projects or business incubator programs.OBTAINING CREDIT APPROVAL FROM LENDERSMany small businesses must rely on loans or other forms of credit to finance day-to-day purchases or long-term investments in facilities and equipment. Credit is one of the foundations of the American economy, and small businesses often must obtain credit in order to compete. To establish credentials for any credit approval process, from short-term loans to equity funding, a small business needs to have a business plan and a good credit history. The company must be able to show that it can repay the loan at the established interest rate. It must also demonstrate that the outlook for its type of business supports planned future projects and the reasons for borrowing.In applying for credit, small business owners should realize that potential creditorswhether banks, vendors, or investorswill seek to evaluate both their ability and willingness to pay the amount owed. This means that the creditor will examine the character of the borrower as well as his or her ability to run a successful business. Creditors will also look at the size of the loan needed, the company's purpose in obtaining funds, and the means of repayment. Ideally, lenders evaluating a small business for credit approval like to see up-to-date books and business records, a large customer base, a history of prompt payment of obligations, and adequate insurance coverage.The process of granting loans to businesses is regulated by the Federal Trade Commission (FTC) to ensure fairness and guarantee nondiscrimination and disclosure of all aspects of the process. The Small Business Administration (SBA) publishes a series of pamphlets and other information designed to assist businesses in obtaining loans. These publications advise businesses on a range of credit approval topics, including describing assets, preparing a business plan, and determining what questions to expect and how to prepare responses to those questions.GRANTING CREDIT APPROVAL TO CUSTOMERSCredit approval is also something that a small business is likely to provide for its customers, whether those customers are primarily individual consumers or other businesses. The process by which a small business grants credit to individuals is governed by a series of laws administered by the Federal Trade Commission that guarantee nondiscrimination and other benefits. These laws include the Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act, Fair Debt Collection Practices Act, and Fair and Accurate Credit Transactions Act.Experts recommend that small businesses develop credit policies that are consistent with overall company goals. In other words, a company's approach toward extending credit should be as conservative as its approach toward other business activities. While granting credit to customers can offer a small business a number of advantages, and in fact is a necessary arrangement for many types of business enterprises, it also involves risks. Some of the disadvantages of providing customers with credit include increasing the cost of operations and tying up capital that could be used elsewhere. There is also the risk of incurring losses due to nonpayment, and of eroding cash flow to an extent that requires borrowing. But granting credit does offer the advantage of creating a strong base of regular customers. In addition, credit applications provide important information about these customers that can be used in mailing lists and promotional activities. In the retail trade, furthermore, credit purchasers have proven to be less concerned with prices and inclined to buy more goods at one time.When developing credit policies, small businesses must consider the cost involved in granting credit and the impact allowing credit purchases will have on cash flow. Before beginning to grant credit to customers, companies need to be sure that they can maintain enough working capital to pay operating expenses while carrying accounts receivable. If a small business does decide to grant credit, it should not merely adopt the policies that are typical of its industry. Blindly using the same credit policies as competitors does not offer a small business any advantage, and can even prove harmful if the company's situation is atypical. Instead, small businesses should develop a detailed credit policy that is compatible with their long-term goals.The decision about whether to grant credit to a certain customer must be evaluated on a case-by-case basis. Each small business that grapples with this issue needs to gather and evaluate financial information, decide whether to grant credit and if so how much, and communicate the decision to the customer in a timely manner. At a minimum, the information gathered about a credit applicant should include its name and address, Social Security number (for individuals), bank and/or trade references, employment and income information (for individuals), and financial statements (for companies). The goal is to form an assessment of the character, reputation, financial situation, and collateral circumstances of the applicant. The rating process takes about three to four weeks, depending on the complexity of the assignment and the flow of information on the client. Rating decisions are made by the Rating Committee.

The rating assigned is communicated to the client along with a detailed rationale. The rating accepted by the clients are published and then monitored on a continuous basis over the life of the instrument. CARE has a comprehensives and companies operating in these industries. Each rating is reviewed formally at least once a year, when analysts meet the issuers management. A review can also be triggered by a major development in the company or in the industry, which may have a significant bearing on the credit-worthiness of the company. As a part of the review exercise, actual financial performance is analysed in the light of the estimates made earlier and deviation are examined. CARE puts the rating under Credit Watch, when any event or deviation from the expected trend has occurred or is expected and additional information is necessary to take rating action. The rating may be retained, upgraded or downgraded based on the changed prospects for the issuer. A rating change is at the absolute discretion of CARE, without concurrence of the client.

CONCLUSION A credit rating is a useful tool not only for the investor, but also for the entities looking for investors. An investment grade rating can put a security, company or country on the global radar, attracting foreign money and boosting a nation's economy. Indeed, for emerging market economies, the credit rating is key to showing their worthiness of money from foreign investors. And because the credit rating acts to facilitate investments, many countries and companies will strive to maintain and improve their ratings, hence ensuring a stable political environment and a more transparent capital market. Ratings of debt instruments are an integral part of U.S. financial markets. Reliance on these ratings is increasing, but their reliability is pathetic. Practically every issuer involved in a major unexpected financial collapse received high ratings immediately before the failure. The most recent and important example involves the failed AAA-rated collateralized debt obligations that set off the 2007 liquidity crisis and current recession. Other notable examples include Enron, Orange County, and Bear Stearns.

BIBLIOGRAPHY

BOOKS 1. Financial Service Management N.G. KALE M.AHMED 2. Financial Service Management Michael Vaz

WEBSITE

1. www.google.com 2. www.wikipedia.com 3. www.hgexperts.com 4. www.investopedia.com