Video Blog: My Broker Said My Mutual Fund Was Rated Triple A or Five Star: What Does That Mean?
Credit ratings are used as indicators of a bond’s creditworthiness by rating organizations, who analyze the financial condition of a bond issuer. There are three major rating organizations in the United States that provide such ratings: Moody’s Investors Service, Standard & Poor’s Corporation, and Fitch Ratings.
Using labels such as “Triple-A” is meant to convey a high likelihood of a bond issuer meeting its financial commitments, such as paying interest and principal on time. While a high rating may seem to be very reliable, it only represents the current status and does not reflect how any future developments to the issuer may affect the bond.
As Attorney Jeffrey P. Coleman also explains in the video below, extreme care should be taken when evaluating any bond’s creditworthiness; as some brokers may mislead investors into believing that a bond’s credit quality is better than it truly is.