What's the Fuzz Over Credit Rating?

To better understand what a country's credit rating is, let me situate you first in a smaller scale...That of a person. Someone who is heavily in debt to many creditors. As in many credit cards or personal loans from a bank. Now, we all know that before a loan is approved, the creditor conducts investigation to check on the credit standing of the person asking for a loan. If the person is able to pay up the loans on time, and if the income of the person is still enough to pay off new loans then he has good credit standing. If the person is not able to pay in time, or worse, defaults payment on loans, then he has a bad credit standing.

If you have a good credit standing, you can even ask for deferment or even outright abrogation of your annual credit card fees. You can even negotiate for the least interest charges. But, If you have a bad credit standing, your cards may even be hold or denied usage. You may even be forced to get new loans from loan sharks who charges higher interest rates just to pay off your other loans.

Much is the same of that of a country's credit rating. the international banks will not give a loans If a country has a bad credit rating, Or in case they will provide the loan , the interest charges will be made higher as the risk of none payment or defaults in payment are highly probable.

So what is the fuzz over credit rating of a country? We just had a notch higher rating from FAVORABLE to POSITIVE . This means that the world financial institutions look at our country as one viable country for credit or loans . This means our country's economic team can shop around for the least interest rates. This also means that the local banks would not be burdened by government borrowings which makes more money available for private companies or institutions' use. This will also mean lowering of local banks interest rates as more money from local banks will compete to get the capitalization requirements of companies expansions.

This in turn will mean more money at lesser interest to fund companies expansion programs which ultimately will redound to more jobs, and better economic condition to the common people.

With more money inflow from off shore creditors, there is not much need for Government T-Bills and Bond Funds, this means that the interest earnings for these instruments will go down. Thus, movements from Bond Funds to Stocks Equity will be expected.

What about us investors on stocks or equities? What is the impact to us of this improved credit rating? This is good news to us, because companies expansions would mean economic upturn and therefore increase in stocks prices for there will be more buyers into the stock market rather than putting their money on T-Bills or Government Bond Funds.

So, go out and invest now!

God bless us all!