The concept of credit rating has been in existence for many decades. It emerged in the early part of the 20th century, primarily in the United States, as a tool for investors to evaluate the creditworthiness of bond issuers. The first rating agency, John Moody and Company, was established in 1909 by John Moody. The agency provided ratings for railroad bonds, which were the primary form of corporate debt at that time.
In the 1930s, the Securities and Exchange Commission (SEC) was established in the United States to regulate the securities market. The SEC recognized the importance of credit ratings and required rating agencies to register with the commission. The SEC also required rating agencies to adhere to certain standards and to disclose their rating methodologies.
In the following decades, credit rating agencies expanded their coverage to include other forms of debt, such as municipal bonds and corporate bonds. With the globalization of the financial markets in the 1980s, credit rating agencies began to expand their operations beyond the United States, setting up offices in Europe and Asia.
The 2008 global financial crisis brought increased scrutiny to credit rating agencies. Critics argued that the agencies had played a role in the crisis by providing overly optimistic ratings for complex financial instruments that ultimately failed. As a result, regulators around the world implemented reforms to improve the transparency and accountability of credit rating agencies.