This paper contributes to the literature by presenting a detailed summary of existing problems with credit rating agencies and proposing a model of a European Rating Agency that acts as a competitor and benchmark to the established credit rating agencies. European Rating Agency (ERA) as a new entrant will make a difference by increasing rating transparency and reputation cost for rating agencies at the same time. A vital point when developing the idea of an independent rating agency was the minimization of regulation changes. This will help shareholder to better orientate and understand the functionalities of the European Rating Agency which will make its establishment process easier. Reputation cost (capital) are assumed to be the building blocks that support the unique position of current rating agencies. ERA is modelled specifically to target this information and use the fragile concept of trust and reputation to the benefit of all stakeholder.