Yes, the U.S. has a credit score. Why it matters.

Just as individuals have credit scores, countries are also graded on their ability to repay borrowed money. And recently, the U.S.’s credit rating dropped.

This May, Moody’s downgraded the U.S. government’s Aaa rating for the first time since 1949, lowering it to the second-highest available rating of Aa1. Moody’s also changed the country’s credit outlook from “stable” to “negative.”

For anyone unfamiliar with national credit ratings, that might sound pretty bad. But to give you a sense of comparison, it’s sort of like seeing your personal credit drop from a perfect 850 score to an excellent 830. A change like that wouldn’t be terribly consequential for you, unless the trend continued.

Similarly, the U.S. downgrade may not make big waves by itself. However, there’s some speculation that the nation’s new rating is still too high and will continue to drop. And that could come with negative consequences that impact your bottom line.

Here’s what you need to know about how the U.S. credit rating works, what it means, and why it matters to you.

Read more: This map highlights the average credit score in every state

A national credit rating, also known as a sovereign credit rating, represents how likely a country is to repay its debts on time. Moody’s, Standard & Poor’s (S&P), and Fitch issue national credit ratings based on factors such as national debt and economic growth.

For more than 70 years, the U.S. had an Aaa rating from Moody’s, which signified to anyone who wanted to invest in the U.S. by buying bonds that the government was highly likely to repay that debt on time.

But as of May, the U.S. government has an Aa1 rating from all three credit-rating agencies. The downgrade from Moody’s is a reflection of economic problems in the U.S. — namely, increased tax cuts and spending are contributing to the growing national debt, which is now at over $36 trillion.

Read more: How rising national debt can affect your finances

Just like with personal credit, it becomes more expensive for governments to borrow money when their national credit rating drops. As a result of the downgrade, you may eventually see any number of these outcomes:

• Interest payments increase on the national debt and take up a larger portion of the national budget

• Cuts are made to government-supported programs

• Interest rates increase on new loans and credit cards

• Decrease in the value of the U.S. dollar

For many Americans, the fiscal problems that led to the downgrade have already hit home. For example, you may have noticed higher interest rates on mortgages in recent years, or you’ve seen your retirement savings balance take a dip.

In other words, the downgrade reflects both economic changes that have already happened and those that are anticipated to happen. If the U.S. fails to take measures to reduce the deficit, the fallout could be accelerated.

Note: A rating lower than Baa1 by Moody’s means the country’s government debt is considered speculative, or “non-investment grade” — commonly referred to as “junk” status.

Over the last 14 years, S&P, Fitch, and Moody’s have all downgraded the U.S. from an Aaa to an Aa rating. Here’s an overview of the three downgrades:

• 2011: S&P lowers the U.S.’s rating, stating that fiscal policies have become less effective and more unpredictable.

• 2023: Fitch downgrades the U.S. rating, citing the government’s growing debt, as well as repeated standoffs related to the debt ceiling and last-minute resolutions.

• 2025: Moody’s makes a downgrade in May 2025, stating that “federal spending has increased while tax cuts have reduced government revenues.”

Credit downgrades can set off a chain of events that eventually impact you as an individual. As a result of a downgrade, the government will pay higher interest rates on debt, which can increase the national deficit and, ultimately, cause more inflation.

That’s why it’s important to be thoughtful and cautious about what you do with your money when the country’s credit rating is downgraded. Instead of making impulsive moves, there are a few things you can do to prepare for the possibility of more economic instability:

Make sure you’re in a position to maximize your interest earnings on savings and investments. By doing so, you can minimize the effects of inflation on your finances. Here are a few ways to do that:

• Long-term savings: Invest in assets that are likely to earn interest or appreciate over time, such as real estate and a diverse portfolio of stocks.

• Mid-term savings: For money you don’t need to spend for the next two years or more, look for fixed-rate assets to invest in, such as CDs and long-term Treasury bonds.

• Emergency savings: For funds you may need in case of emergencies, keep the money in a high-interest-earning account, such as a high-yield savings account, that you can access at any time.

If you have debt with variable interest rates — meaning the rates can fluctuate according to market conditions — try to pay it off before rates increase. If you can’t pay off the full balance, aim to reduce it by as much as possible. Accounts that typically have variable rates include credit cards and home equity lines of credit.

If you’re not sure how to tackle credit card debt and other variable-rate debt, consider using the debt avalanche method, which involves paying extra toward your debt with the highest interest rate until it’s fully paid off, and then rolling your free funds to your account with the next-highest rate.

Alternatively, you can consult with an NFCC-certified credit counselor to discuss strategies and programs that can help you eliminate debt.