Demerits Of Credit Rating - Disadvantages Limitations

Demerits of Credit Rating

The disadvantages, limitations or demerits of blogspot.com//search?q=what-is-credit-rating-meaning-articles">credit rating are listed below.

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1. Possibility of Bias Exist : The information collected past times the rating means may live on discipline to personal bias of the rating team. However, rating agencies endeavour their best to render an unbiased persuasion of the credit lineament of the companionship and/or instrument. If not, they volition non live on trusted.
2. Improper Disclosure May Happen : The companionship beingness rated may non bring out certainly fabric facts to the investigating squad of the rating agency. This tin impact the lineament of credit rating.
3. Impact of Changing Environment : Rating is done based on acquaint together with past times information of the company. So, it volition live on hard to predict the futurity fiscal put of the company. Many changes have got house due to changes inward economic, political, social, technological, legal together with other environments. All this volition impact the working of the companionship beingness rated. Therefore, rating is non a guarantee for fiscal soundness of the company.
4. Problems for New Companies : There may live on problems for novel companies to collect funds from the market. This is because, a novel companionship may non live on inward a put to test its fiscal soundness. Therefore, it may have lower credit ratings. This volition larn inward hard to collect funds from the market.
5. Downgrading past times Rating Agency : The credit-rating agencies periodically review the ratings given to a detail instrument. If the surgical operation of a companionship is non every bit expected, thus the rating means volition downgrade the instrument. This volition impact the picture of the company.
6. Difference inward Rating : There are cases, where unlike ratings are provided past times diverse rating agencies for the same instrument. These differences may live on due to many reasons. This volition practise confusion inward the minds of the investor.