Chapter 4, Problem 8AA

To determine

To analyze the option best suited for the blank.

Explanation of Solution

A credit rating is a quantified measure of the financial health of the creditor in general terms or in relation to a specific debt or financial commitment. Any entity seeking to take loans — individual, company, state or provincial authority, or federal government — can be given a credit rating.

Good credit ratings imply a strong probability of repaying the loan in its entirety without any problems; weak credit ratings mean that the debtor has had difficulty repaying loans in the past and could be following the same trend in the future. Credit ratings influence the ability of the company to be accepted for the loan or to obtain favorable terms for the loan.

A consumer can always improve his or her credit rating, despite previous mistakes.