Question

How do credit (debt) ratings affect the cost of borrowing for a company?

Answer 1

Credit rating represents the credit worthiness of the company and it helps to predict the ability of the company to pay its debt.

The credit rating have a greater impact on the borrowing cost. Higher credit rating represents the higher credit worthiness of the company. A company with higher credit rating would pay lesser percentage of interest on the borrowed fund and it would get a longer time period to pay the debt. Whereas, a company with lower credit worthiness would have to pay higher percentage of interest on borrowed fund and it would get a shorter time period to pay its debt.