How do I interpret credit ratings?

A credit rating is an independent assessment of the creditworthiness of a bond by a credit rating agency (principally Moody’s Investors Service, Inc., Standard & Poor’s Corporation and Fitch Ratings). It measures the probability of the timely repayment of principal and interest of a bond. The higher credit ratings, as shown below, indicate a higher probability of the investment being repaid. Generally, a higher credit rating make bonds more marketable.

The long-term credit rating symbols are generally assigned with "triple A" as the highest and "triple B" (or Baa for Moody’s) as the lowest in investment grade. Anything below triple B is commonly known as a "junk bond." The tables below provide descriptions of long-term and short-term ratings.

Long-Term Rating Categories

Grade	Moody's	S&P	Fitch	Description
Investment Grade	Aaa	AAA	AAA	Highest quality investment with least risk. Interest payments are protected by a large or exceptionally stable margin and principal is secure.
	Aa	AA	AA	Judged to be of high quality. Fluctuation of margin is slightly higher than AAA or other long-term risks are slightly higher.
	A	A	A	Upper medium grade obligations. Factors providing security for principal and interest are adequate
	Baa	BBB	BBB	Medium grade neither highly protected nor poorly secured. Currently adequate protection but long-term susceptibility to interruption or impairment.
Non-Investment Grade	Ba	BB	BB	Some speculative elements. Protection is moderate. Future uncertainty toward fluctuations in coverage.
	B	B	B	Lack characteristics of desirable investments. Assurance of protection and coverage small over time.
	Caa	CCC	CCC	Poor standing. Uncertainty of current payment of principal and interest.
	Ca	CC	CC	Highly speculative standing. Often in default with other market shortcomings.
	C	C	C	Extremely poor prospects of even attaining real investment standing.
		D	D	Default.

Short-Term Rating Categories

Moody's	S&P	Fitch	Description
MIG-1	S&P-1	F-1	Very strong capacity to repay, high safety characteristics.
MIG-2	S&P-2	F-2	Satisfactory capacity to repay principal or interest.
MIG-3	S&P-3	F-3	Satisfactory capacity to repay, but coverage margin subject to fluctuations.
MIG-4	S&P-4	F-4	Speculative capacity to repay principal interest.