Credit ratings are essential to the success of our financial market. Investors depend on credit rating agencies to provide their expertise on which lenders are the least risky and will be the most profitable. There are three main international credit rating agencies. They are Standard & Poor's, Moody's, and Fitch, also known as "The Big Three." Standard & Poor's and Moody's combined make up 80% of the international credit rating market, while Fitch makes up approximately 18% of the market.
Issuing false rating through flawed methodologies are existing issues within international credit rating agencies. Each of these agencies utilizes an issuer-pay revenue model to determine the credit rating of businesses. This model allows businesses to pay the credit rating agencies that provide their credit ratings. Inflating credit ratings provides an incentive for credit rating agencies to have an attractive portfolio. Higher ratings can be sold to investors at a higher price. This is a significant conflict of interest, which Standard & Poor's and Fitch have been penalized for in the past. Furthermore, the issuer-pay model has been the root cause for several major financial crisis events that have occurred over the years when high credit ratings were reported for risky borrowers. The Enron Scandal is an example of how the issuer-pay model failed. These financial events affected New York, Asia, and South Africa.