What do credit ratings assess in relation to borrowers?

Credit ratings primarily assess the creditworthiness of borrowers. This measure evaluates the likelihood that a borrower, be it an individual or an entity such as a municipality or corporation, will fulfill its financial obligations, specifically in repaying debt. Creditworthiness encompasses various factors, including the borrower's past payment history, financial stability, and overall financial health.

While liquidity of assets and the ability to generate revenue can influence a borrower's creditworthiness, they are components of the broader assessment rather than the primary focus of credit ratings. Furthermore, risk of default is closely related to creditworthiness; however, it is more of a consequence of a borrower's credit profile rather than the actual assessment being made by the ratings. Thus, the correct identification of creditworthiness as the focus of credit ratings captures the essence of what these ratings are designed to evaluate in relation to borrowers.