Credit scoring is a system developed "to score" a company according to its creditworthiness. Credit scoring is therefore a useful tool to help creditors decide whether to grant a company credit. Therefore the credit scoring system is a very important indicator as to whether a company will be granted credit.
The Importance of the Credit Scoring System
As mentioned earlier, the credit scoring system was developed to assess companies according to their creditworthiness. It is very important that businesses are able to access a good and reliable credit scoring system, as this tool can be used to minimise the risks a company takes when considering extending credit. The system assigns a score for a company by analysing the available financial data and comparing this with other companies.
How is a Credit Scoring System Calculated
All credit scoring models are complex and will vary according to the creditor companies who write them and the different types of credit. A creditor will select a random sample of clients (or a sample of similar companies if their client base is not large enough) analysing it statistically to identify the characteristics that relate to creditworthiness. These are then used to draw up a scale that other companies can be measured against.
Therefore if one of the factors used in the calculation of the credit scoring for a company changes, the score may change. Changes in the credit scoring generally depend on how a change in a particular factor relates to the other factors considered by the model.
Creditors will utilise a credit scoring system to allow them to evaluate millions of applicants consistantly and impartially on many different characteristics.
checkSURE's Credit Scoring System
checkSURE utilises a credit scoring system, assigning a score to each company along with the Full Company Report and a suggested credit limit. checkSURE's Full Company Reports are available online and are delivered to your desktop instantly via your email and checkSURE portfolio. checkSURE's database covers all incorporated companies throughout the UK as well as sole traders and unincorporated partnerships. As a credit scoring is calculated using available financial data, only companies who regularly file accounts and are trading will be assigned a score and credit limit.
The credit scoring system that checkSURE uses is based on around four hundred separate calculations using software and modelling expertise.
Therefore credit scoring provides greater consistency and objectivity forming a well-controlled decision making process. This gives companies the ability to manage risk exposure with an improved degree of accuracy and keeps well in line with the clients' business goals. Credit scoring allows for more informed decisions which will help companies to reduce bad debt.
What information is used to calculate checkSURE's credit scoring?
The following lists the information used when calculating a credit scoring for a company:
- Late payments
- Bill-paying history
- Number and type of accounts
- Outstanding debt
- Collection actions
The age of all company accountsCredit scoring is based on real data and statistics, so it is more reliable than subjective or judgmental methods.