Investors worldwide rely on Moody’s, Standard & Poor’s and Fitch for unbiased bond ratings. All three services are certified by the U.S. Securities and Exchange Commission as Nationally Recognized Statistical Rating Organizations. These agencies post corporate, municipal, government and foreign bond credit ratings on their websites, and investors can use this information to research a particular bond’s creditworthiness for free.
Open your online trading account and go to your bond screener. If you don’t have an online account, Yahoo! Finance has a free online bond screener you can use. Enter the maturity time frame, credit quality and call feature in your search window. Callable bonds can be called in by the company at any time. That could result in a loss, so select non-callable bonds to avoid this possibility. Run the search, review the bond list, and conduct any further research you feel is needed.Step 2
Obtain a copy of the bond’s online prospectus, or contact the company and request one be mailed to you. If you have a trading account, your broker can obtain a copy for you. Review the prospectus and locate the CUSIP number, which is usually printed on the prospectus’ first or second page. You can find the bond's credit rating using this unique identification number, which is issued under the Committee on Uniform Securities Identification Procedures system.Step 3
Select one of the online bond rating services and go to its website. Enter the CUSIP number in the search box, then click on the search button to go to the bond’s information page. Find the bond’s credit rating and look for any credit rating changes. Review the coupon (interest rate), maturity date, the bond’s rating and the date it was rated. Make notes of this information before running a credit check using a different rating service.Step 4
Compare the bond’s credit ratings from two companies to see whether they assigned similar ratings. From highest to lowest, Fitch’s bond ratings are A++, A+, A, A-, B++, B+, B, B-, C++, C+, C, C-, D, E, F and S. Fitch also uses a long-term and short-term rating scale. S&P bond ratings are AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-, CCC+, CCC, CCC-, CC, C and D. Moody's rating system uses a combination of letters and numbers: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, C and C.
Items you will need
- Online bond screener
- Check other bonds issued by the same company or government entity to see whether any are in default or have a low credit rating.
- The higher the bond interest rate, the lower the rating, and the greater the risk of default on the bond.
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