A credit report summarizes historical financial information collected to determine an individual's or an entity's credit worthiness, that is, the means and willingness to repay an indebtedness. Financial institutions utilize credit reports to gauge credit reputation, and thus determine whether to extend credit, and on what terms. With the adoption of risk based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element used to choose the interest rate.
Annual, two-year average, and three-year average indicators of qualitative creditworthiness, as well as annual, two-year average, and three-year average indicators of quantitative creditworthiness, are calculated using the coverage ratio.
The terminology "less" creditworthy is used instead of "not" creditworthy because it is recognized that the farms have been in operation over a nine-year period and most of them have utilized some form of debt over this period.
The creditworthy classifications are based on annual, two-year average, and three-year average measures of creditworthiness using 1.00, 1.15, and 1.30 cut-off values.
Nevertheless, the concepts of country risk and creditworthiness are no less important, as many institutional investors from industrial countries are allowed to invest only in instruments that meet or exceed a minimum credit rating standard.
The variables to be used to explain a country's credit rating must be consistent with the factors that the compilers of the ratings have indicated they used in assessing a country's performance and what the theoretical literature has stressed as important in determining the capacity and willingness to service external debt.
The influence of a country's external position on its creditworthiness is measured in terms of the scale of its existing obligations and the factors affecting its ability to service these obligations.
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