What defines a credit rating?

A credit rating is fundamentally an assessment of a borrower's creditworthiness. It reflects the likelihood that the borrower will default on their debt obligations, allowing lenders and investors to gauge the relative risk associated with lending to that borrower. Credit ratings are typically assigned by credit rating agencies based on various factors, including the borrower’s payment history, financial stability, and overall economic conditions. They provide valuable insights for investors and institutions when making lending decisions, as a higher rating indicates a lower risk of default.

The other options do not accurately define a credit rating. An average rate of return on investments pertains to the performance of investment vehicles, while an interest rate offered by banks is a cost associated with borrowing rather than a measure of creditworthiness. A measure of economic growth relates to overall economic performance indicators, such as GDP, which is not tied specifically to the assessment of individual borrowers.