Ask The Money Coach

In a harsh critique of the American political process, Standard & Poor’s announced Friday night that it has downgraded the United States’ credit rating for the first time — an historic move that in one fell swoop simultaneously raised America’s borrowing costs by tens of billions of dollars annually, and promised to result in higher interest rates and borrowing costs for U.S. consumers as well.

What is the definition of a credit rating? A credit rating is an indicator of how likely someone is to repay a debt. That someone could be an individual, a company, a city, a county, a state, or even a country. All these entities have credit ratings. Up until August 5, 2011, the United States had always maintained a top tier AAA credit rating. This means, that any debts owed by the American government were extremely likely to be repaid – and repaid on time. The downgrade by S&P still means the U.S. has a very strong credit rating, but it’s been knocked down a notch to AA+.

Now that S&P has downgraded America’s credit rating, America will have to pay as much as $75 billion to $100 billion on its outstanding debts. Meanwhile, U.S. banks will likely immediately raise interest rates for consumers on everything from auto loans to credit cards to mortgages and student loans.

Read more about the U.S. Debt downgrade.

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