Credit ratings by letter are assigned by three U.S. agencies: Standard & Poor's, Fitch, and Moody's. These rating agencies are the "big three" that investors analyze. Their ratings range from A to D with pluses and minuses applied to each to indicate how likely it is that a borrower will repay its debt.
Higher ratings come with triple letters. Grades that come with a plus are better than those with a minus.
Key Takeaways
The S&P and Fitch AAA ratings are the highest assigned to any debt issuer.
An AAA rating is the equivalent of the Aaa rating issued by Moody's.
AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.
The AA+ rating issued by S&P and Fitch is similar to the Aa1 rating issued by Moody's.
The AA+ rating comes with very low credit risk and indicates that the issuer has a strong capacity to repay its debts.
An Example of Ratings
Finance professionals were kept awake after (S&P)announced in August 2011 that it was downgrading its credit rating on the U.S. from AAA to AA+. Then Fitch followed suit on Aug. 1, 2023, also dropping the U.S. rating from AAA to AA+.
The news sent shock waves across the world in 2011 and the vibrations were felt even more the following week when the market dropped over 6% by the end of the day. But that market decline was benign compared to the individual beatings some stocks endured.
China also found itself on the chopping block on May 24, 2017, when rating agency Moody's downgraded the country's credit rating as growth slowed and debt increased. So why do people care about this and what do these ratings mean?
S&P and Fitch Ratings
Standard & Poor's and Fitch rate the debt of countries and companies based on these letter grades. The firms create their ratings from information such as annual reports, news articles, and company management. Analysts from S&P and Fitch consider a company's or country's financial situation and other determining factors.
What Does AAA Mean?
The S&P and Fitch AAA rating is the highest that can be assigned to any issuer of debt. It's the same as the Aaa rating issued by Moody's. This rating is assigned to investment-grade debt that has a high level of creditworthiness. Debt issuers with the highest ratings have the strongest capacity to repay investors. Their strong financial positions give them the lowest chance of default.
Eleven countries had the strongest AAA rating from S&P as of June 2023: Australia, Canada, Denmark, Germany, Liechtenstein, Luxembourg, Netherlands, Norway, Singapore, Sweden and Switzerland.
What Does AA+ Mean?
The AA+ rating is issued by S&P and Fitch and is similar to the Aa1 rating issued by Moody's. This rating is still of high quality but it falls below the AAA ranking. It comes with very low credit risk even though long-term risks may affect these investments.
The AA+ rating is one of the rankings for investment-grade debt. Investments that are rated with an AA+ rating are financially strong and have a strong likelihood of repaying their debts, making the chance of default very low.
The S&P and Fitch ratings for the United States still sit at AA+ with a stable outlook as of August 2023. The fact that the U.S., the world's largest economy, went from AAA to AA+ for only the second time in history is a big deal. The downgrade was painful in terms of stature. But Moody's has continued to give the country an Aaa rating, citing a stable outlook as well.
Does the U.S. Still Have an AAA Credit Rating?
Yes, at least from DBRS and Moody’s. DBRS has the U.S. rated at AAA with a stable outlook and Moody’s rating for the U.S. is Aaa with a stable outlook.
What Is the Credit Rating of the U.S.?
The U.S. credit rating is Aaa, according to Moody’s. S&P and Fitch have the U.S. rated at AA+.
When Did the U.S. Lose Its AAA Credit Rating?
The U.S. was downgraded from AAA to AA+ in August 2011 by S&P and in August 2023 by Fitch. Both agencies have cited the declining predictability of policymaking and last-minute policymaking.
The Bottom Line
The difference doesn't really seem to matter whether your investment holds an AAA or AA+ rating. What always matters in this game is valuation and patience. Sticking to the simple philosophy of buying an asset below its long-term intrinsic value should ultimately lead to satisfactory results. It's a philosophy that is indeed simple to understand yet difficult to execute for most investors.
An AAA rating is the equivalent of the Aaa rating issued by Moody's. AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors. The AA+ rating issued by S&P and Fitch
Fitch
Fitch Ratings is a credit rating agency that rates the viability of investments relative to the likelihood of default. Fitch is one of the top three credit rating agencies internationally, along with Moody's and Standard & Poor's.
'aa' ratings denote very strong prospects for ongoing viability. Fundamental characteristics are very strong and stable, such that it is considered highly unlikely that the financial institution would have to rely on extraordinary support to avoid default.
For example, with S&P and Fitch, a rating of AA+ is better than AA, and a rating of AA- is worse than AA but better than A+. Moody's uses numbers to indicate relative quality, with Aa1 being the best Aa rating, followed by Aa2 and Aa3.
A+ or A: An A+ credit score means you're always on time with your monthly payments, you only utilize a small fraction of your available credit, and you're well on your way to paying off any mortgage or auto loans in your name.
Fitch Affirms the United States at 'AA+'; Outlook Stable. Fitch Ratings - New York - 01 Mar 2024: Fitch Ratings has affirmed the United States of America's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'AA+' with a Stable Outlook.
AA+ and Aa1 are bond ratings associated with a relatively low-risk, low-yield investment as defined by the rating agency. An Aa1 rating is used by Moody's, and an AA+ rating is used by Fitch Ratings and Standard and Poor's. Both ratings indicate the second-highest level of creditworthiness.
The S&P and Fitch AAA ratings are the highest assigned to any debt issuer. An AAA rating is the equivalent of the Aaa rating issued by Moody's. AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.
Standard & Poor's and Fitch assign bond credit ratings of AAA, AA, A, BBB, BB, B, CCC, CC, C, D. Currently there are only two companies in the United States with an AAA credit rating: Microsoft and Johnson & Johnson.
Banks with an AAA rating are considered the lowest risk and highest quality, with AA clocking in slightly less. BBB and below represent a moderate risk, and so on.
On August 1, 2023 Fitch downgraded USA long-term credit rating to AA+ from AAA. Following the downgrade, economists argued that higher interest rates will result in higher mortgage rates and also assert that relying on foreign financing can have risky economic implications.
Aaa Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk. Aa Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
'AA' rated entities and instruments demonstrate very high credit quality with a very low default risk. 'A' rated entities and instruments demonstrate high credit quality with a low default risk. 'BBB' rated entities and instruments demonstrate medium credit quality with a moderate default risk.
In S&P Global Ratings long-term rating scale, issuers and debt issues that receive a rating of 'BBB-' or above are generally considered by regulators and market participants to be “investment-grade,” while those that receive a rating lower than 'BBB-' are generally considered to be “speculative-grade.”
The Bureau Score ranges from 1000 to 2000 for risk grades AA to HH. The lower the Bureau Score, the higher the probability of default. If you see an AA on your report, congratulations on having a good credit score!
Code AA chargebacks are often caused by the cardholder forgetting or failing to recognize a legitimate charge, but they can also be caused by fraud committed by a third party using stolen payment credentials.
An Associate Degree in Finance lays the groundwork for understanding the essential principles of finance and business. Spanning 60 credits, this program integrates general and finance-specific courses over two years of full-time study.
A+, A, A- Exceptional, outstanding and excellent performance. Normally achieved by a minimum of students. These grades indicate a student who is self-initiating, exceeds expectation and has an insightful grasp of the subject matter. B+, B, B- Very good, good and solid performance.
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