Credit Scoring
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 accounts
Credit scoring is based on real data and statistics,
so it is more reliable than subjective or judgmental
methods.
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