Jo Dawson - August 2016
Credit ratings, what do they mean?
Often banks will use a credit score to help determine whether to lend you money.
Countries and companies also have credit scores, known as credit ratings.
Credit ratings are determined by credit agencies such as Standard and Poors and Moody’s. For countries and companies, a credit rating determines whether or not a borrower will lend them money but also the interest rate they will need to pay.
The recent vote by the UK to leave the European Union has resulted in Standard and Poors downgrading the UK’s AAA credit rating. The reason for this is due to economic uncertainty that the referendum has left the UK with. No one really knows how the UK economy will finally end up.
With our recent Federal Budget, ratings agency Moody’s has warned Australia could risk losing its AAA Sovereign credit rating. So what does all this mean? Possibly nothing, but theoretically it could increase the interest rates on Government and Non-Government net debt.
Any downgrade to the Australian Sovereign credit rating would be expected to impact Australian bank credit ratings, which could flow onto the interest rates charged on mortgages.
At Victoria Teachers Mutual Bank, we are rated by Moody’s and our rating is reflective of the strength of Australia’s Sovereign credit rating, our Mutual ownership structure, our low risk business model, and our financial performance.