You may probably have ever been in need of some money to finance a project or someone may have come to you for financial support to meet a particular expenditure. It may also happen that you may not have been in any of these two situations but maybe sometime in the future, you may find yourself in one.

Individuals, companies and other businesses as well as governments at one point or the other face financial constraints. They, therefore, begin to identify sources from which they can solicit for financial support for whatever need may be existing.

It is crucial to note that in the past and still today, financiers or credit providers will not readily give out any such assistance until they are assured of the ability of the borrower to fulfil the terms of the loan agreement, especially paying back the amount taken and any interest thereof. This, therefore, is what credit rating is about.

The evaluation of the ability of a borrower to honour the terms and conditions of a credit or loan agreement is what is termed credit rating, in its simple terms. It is carried out by a third person called a credit rating agency, other than the “loan seeker” and a report is prepared thereafter detailing the status of the creditworthiness of the borrower. This enables the lender to make decisions as to whether to go ahead and grant the credit or decline.

Various financial institutions, especially banks do this before they give out loans. Also, the international financial support firms and other nations do the same before they advance financial support to “needy” countries.

Failure on the part of a lender, whether as an individual or financial institution means risking the chance of getting the amount given back. It is therefore vital for various credit rating tools to be employed or better, seek the services of a credit rating agency to determine your creditworthiness status, as a borrower.

This will increase your chance of getting the credit sought. For a lender, do well to demand a credit rating report or conduct credit rating assessment if possible before giving out any financial support. This will guarantee you a good financial decision.

The call for all, individuals, all manner of businesses and governments, to embrace credit rating is encouraged as the benefits of it far outweighs its cost.


Source: Isaac Nana Opoku/