Do credit ratings (by Moody's, S&P, and Fitch) have any relevance?
They've pretty much shot any credibility they possessed. Follow the money. "The problems with ratings and the interpretation of ratings is that they are retrospective, and most people read them as prospective. They basically tell you that debtor is solvent right now. What does that mean? It means that the ratings are based on the audited financial statements of a company, government or other organization issuing debt. So, in the best case scenario where the rating agency is acting properly, they are still dependent on folks with fiduciary responsibility telling the truth. And even if they are telling the ""truth"", accounting rules make it possible to obscure problems for years in some cases. Municipal goverments are a great example of this... the general obligation bonds cities and even states with deep structural budget problems still get good ratings, because they are solvent and have sufficient operating cash to meet obligations today. But towards the end of a 30-year bond's life, that may not be the case anymore unless they dramatically alter their budgets. At the end of the day, ratings are one aspect of due diligence. They are useful screening devices, but you need to understand who you are lending money to by purchasing bonds and diversify your holdings to protect your wealth.  The problem, of course, is when the trustees of your pension fund invests in garbage assets after getting a sales pitch on the beach in Hawaii, then conveniently place all of the blame for that bad investment on the rating agency. You unfortunately have zero control over that." "I like Muro questions! No, I don't think they do.  Because for me, as a personal finance investor type just trying to save for retirement, they mean nothing. If I cannot tell what the basic business model of a company is, and how that business model is profitable and makes money, then that is a ""no buy"" for me.  If I do understand it, they I can do some more looking into the stock and company and see if I want to purchase. I buy index funds that are indexes of industries and companies I can understand.  I let a fund manager worry about the details, but I get myself in the right ballpark and I use a simple logic test to get there, not the word of a rating agency. If belong in the system as a whole, I could not really say.  I could not possibly do the level of accounting research and other investigation that rating agencies do, so even if the business model is sound I might lose an investment because the company is not an ethical one.  Again, that is the job of my fund manager to determine.  Furthermore and I mitigate that risk by buying indexes instead of individual stock."
"I used to work for one of the three ratings agencies. Awhile ago. First: There are lots of different ratings. The bulk of ratings are for corporate debt and public finance. So senior debentures (fixed income) and General Obligations e.g. tax-free muni bonds, respectively. Ratings agencies are NOT paid by the investment banks, they are paid by the corporations  or city/ state that is issuing debt. The investment banks are the syndicate that pulls the transaction together and brings it to market.  For mortgage-backed securities, collateralized debt CDO-CLO's, all of which are fancy structured securitizations, well, that is a different matter! Those  transactions are the ones where there is an inappropriately close tie between the investment bankers and ratings agencies. And those were the ratings that blew out and caused problems.  Ratings agencies continued to do a decent job with what WAS their traditional business, corporate and municipal bond ratings, as far as I know.   What khajja said was 100% correct: S&amp;P's fees were paid by investors, the people who were purchasing the bonds, until about 50 years ago. Around the same time that McGraw-Hill purchased S&amp;P, in 1966, they departed from that model, and started charging the bond issuers for ratings. I don't know if that decision was driven by McGraw-Hill or not, though.  One more thing: Not all credit ratings agencies are paid by the issuers. One of the 10 NRSRO's (a designation given by the S.E.C.) is Egan-Jones. Their revenue comes from the investors, bond purchasers, not the companies issuing bonds, unlike the S&amp;P/ Fitch/ Moody's ""business model"". So there is an alternative, which I consider hopeful and reason not to totally despair.  EDIT: What xcrunna19 mentions is also totally accurate. The part about Nouriel Roubini (who is a professor at N.Y.U. or Columbia or such and a sensible though slightly high strung sort) is consistent with my impression. As for whether it would require government action to implement the changes advocated by Roubini, yes, I guess it would, but I don't know if the government would do that. It would be better if the credit ratings agencies would find their own way to a different, less conflicted payment-incentive model.  Keep in mind too that many of the provisions of Dodd-Frank have removed the existing regulatory requirements for credit ratings on bonds and other securities. This is the scary part though: There isn't anything to replace the credit ratings agencies, not at the moment, as far as I can tell! Eventually the government is supposed to come up with an alternative, but that hasn't happened yet. Which is better: Not requiring ratings at all, or the past situation of sometimes inflated ratings, which imparted a false sense of confidence? I don't know." Yes, the entire financial system is based on trust. As we have seen repeatedly, even the ratings agencies can be wrong and in collusion. You need to understand what products have any insurance/contingency/recourse if things don't go as planned. A lot of people were surprised when they found out SIPC didn't ensure futures when MF Global declared bankruptcy last fall. The one financial reform we should have passed is to stop the conflict of interest rating agencies have:   They get paid by the very companies they are supposed to rate!  All it takes is a company to slip a little more in to get that higher rating. I've heard this is also how the BBB operates too. Some banks are bankrupt, or so close to it that they can only pretend to give real dividends in a desperate attempt to keep investors from fleeing and driving their stock price (and thus credit rating) down into a pit of despair.   Other banks (like jpmc) are not in  bad shape, have cash, and are quite happy to disburse it. Here is one the links for Goldmansachs. Not to state the obvious, but most of their research is only available to their clients. http://www.goldmansachs.com/research/equity_ratings.html Just playing devil's advocate: A falling stock price impairs the firm's ability to raise equity capital efficiently. In these times, additional regulatory capital requirements continue to be levied on the banks, and they are faced with raising capital inefficiently, which may impair their ability to pay their debt, which may lead to a ratings downgrade. This is not shocking news actually. Nothing happened to these banks that made them lose their ratings. Rather, it's the rating agencies that have set up more strict rules, especially when it comes to triple A status.  Specifically, it's no longer possible that banks or similar institutions can have a triple A status.This effectively means that only the richer countries can be triple A. i forget which one, but one of the two majors (S&amp;P, Moodys), for a time, was not paid by issuers, but solely by subscribers. no surprise here, but at that time the issuer had, on average, lower ratings than the other service. after the service switched to subscriber-paid, within a year its ratings were on par with the other service. Yeah it was a mix between the issuing agencies and the credit agencies. If the credit agencies didnt rate them as AAA then the financial institutions would just go to the other agency. So there was a conflict of interest in rating them higher. There was mismanagement on both sides of the fence and when the CDOs started to default it created a forced selling environment where people HAD to sell their CDOs/stocks at a steep discount to get enough liquidity to pay their own mortgages. The answer to your question is no. Your credit rating is the way creditors let each other know whether you are in a good position and have a strong tendency to repay your debts, not whether you are an easy target for making money on interest and penalties associated with failing to repay debts in full.  The fact that you make your payments on time will definitely not lower your credit rating. While the banks are not making as much money on you as they would if you carried a balance, they are also not spending a lot of money on you, nor losing a lot of money on people like you failing to repay debts.  The transactions charged to the retailers cover the costs of operating your card and then a little bit.  That is enough to make you worth keeping as a customer.  They are happy with your arrangement. The formula for credit rating computation is proprietary, but we know what the factors are overall.  Making payments on time consistently is a positive, not a negative factor.  However, they do look at the number of cards and overall mix of cards and other types of debt.  For example, if you have a very large amount of credit capacity in your cards and no mortgage, that could possibly be a negative.  If you have opened some of those accounts recently, it could be a negative.  If you have a larger number credit cards than they think is good, that could be a negative. There are other things as well that could be bringing your score down.  Probably worth it to take a look. If you want to get an idea of what factors are adding positively and negatively to your credit score, I'd encourage you to visit CreditKarma.com, Quizzle.com, or another source intended to help you understand and improve your credit rating. US government bonds are where money goes when the markets are turbulent and investors are fleeing from risk, and that applies even if the risk is a downgrade of the US credit rating, because there's simply nowhere else to put your money if you're in search of safety. Most AAA-rated governments have good credit ratings because they don't borrow much money (and most of them also have fairly small economies compared with the US), meaning that there's poor liquidity in their scarce bonds. The credit scale is deceptive, it goes: AAA, AA, A, BBB, BBB-, BB+, BB, B, CCC, CC, C, D. In reality it should be A,B,C,D,E, F, G,H, I, etc. The current scale does not reflect with clarity the ranking of risks and ratings. AA is much worse than AAA, but the uncertainty involved can be scary. Check out these corporate and sovereign debt credit ratings. Apple is currently the most valuable company in the world by market capitalisation and it has issued bonds for instance. Amazon have also issued bonds in the past as have Google. One of many reasons companies may issue bonds is to reduce their tax bill. If a company is a multinational it may have foreign earnings that would incur a tax bill if they were transferred to the holding company's jurisdiction. The company can however issue bonds backed by the foreign cash pile. It can then use the bond cash to pay dividends to shareholders. Ratings Agencies such as Moody's, Fitch and Standard & Poor's exist to rate companies ability to make repayments on debt they issue. Investors can read their reports to help make a determination as to whether to invest in bond issues. Of course investors also need to determine whether they believe the Ratings Agencies assesments. Your credit score is based on your use of Debt. From wikipedia: Opening and closing bank accounts, buying or selling cars without debt, or even buying or selling houses without debt won't affect your credit score. So their programmers don't have to deal with floating point arithmetic. This is why they're so far ahead in technology!