A credit rating is different from a credit score in that credit ratings are generally applied to large entities such as countries or corporations, while credit scored are assigned to individuals. A credit rating is a complicated set of calculations that determine the entity’s likelihood of being able to pay its debts in the future.
The criteria used to determine the credit rating of a country (which is called a sovereign credit rating) include the political atmosphere in the country, its economic prosperity – or lack thereof – and its general stability. If a country has a stable government and has a growing economy, its credit rating will generally be good. A country that has a lot of internal strife or any form of instability at all will receive a lower rating due to the possibility of regime change and the new regime not honoring the debts incurred by the previous government. Likewise, a country with a shaky economy will not be considered a good credit risk due to the possibility that they will not be able to generate enough income to service their debts.
When credit ratings are applied to corporations, they are generally given a rating according to not only their financial history, but also on a critique of the company itself. The credit rating agencies, such as Standard & Poor, rate the corporation much as they would a country, state, or city. They use a wide variety of criteria to assess the probability of that entity being able to repay debts. The system is highly complex, and a credit rating can change quickly if events inside the corporation have changed major components of the corporation’s operations. This type of change can be disruptive and can make the rating agency much more cautious about giving it a high rating.
Today, the country with the highest credit rating is Norway, because it has a combination of stable