A credit rating is a score that is assigned to a company or an individual to show whether they have a good credit history. The credit rating will evaluate how trustworthy a company or an individual is at paying back any credit owed.
What is a Credit Rating for?
A credit rating is used by creditors (this can be a a lending bank or a company extending credit on a client's account) to decide whether or not they want to extend credit to a potential client or customer. The credit rating allows the creditor to evaluate the risk of extending credit to a potential client.
It is very important and beneficial for a company to request a credit rating from every potential client, this will provide the first glimpse into how financially stable the client is. It is especially important to request one if the client will be a potentially large account, this is because the downfall of the client may have a big adverse effect on on the creditor.
Knowing the credit rating will alert you to the risk of receiving money owing from the potential client.
How is the Credit Rating Calculated?
A credit rating is calculated using any financial data that is available on the client, it also takes their bill paying history into account as well as how many times they have applied for credit. Due to the nature of the way it is calculated, a credit rating gives a more accurate reflection of a client's financial position than other subjective methods.
A credit rating for an individual will evaluate their financial status for the past five to ten years, one for a company will evaluate all available data from incorporation.
It is calculated using the following information:
- The client's bill paying history
- Any past credit granted and how much they total
- Financial history - such as past accounts
- How many times the client has applied for credit
- Any CCJs against the company
- Whether the company has been sued
- if the company has ever filed for bankruptcy
If a company applies for credit, loans, or insurance, there's a credit rating file about the company's history of payments. This credit rating file contains information on where the company is based, how they pay bills, and whether the company has been sued, arrested, or filed for bankruptcy.
For a business, credit rating can often decide what credit will be extended. There are many opportunities for a client to check the companies credit history, and it is advised to do so every year.
Importance of a Credit Rating
It is very important for a business to keep fully up to date as to what is on the credit report. Credit rating reports provide the best possible information as to the likelihood of a business defaulting on its debts. Some clients' failure to repay credit could have damaging effects on your company.
checkSURE credit check service is built around one key component - "Full and Comprehensive Company Reports". You can purchase "Full Company Reports" online for only £9.95 plus VAT.
Credit rating by checkSURE introduces greater objectivity and consistency as part of a well-controlled decision process, giving online clients the ability to manage risk exposure with a greater degree of accuracy and in line with their overall business goals. More informed decisions help clients to reduce bad debt and offer more appropriate pricing in response to higher credit rating risk.
If a loan company refuses a company credit because of information found on the business credit rating, the client is legally allowed to start their credit rating from fresh. If the client had fallen into arrears on a previous loan in the past, it doesn't mean that they will never be allowed to gain credit again.
All credit rating reports are saved within your checkSURE portfolio and can be viewed from any Internet connected computer in the world. This means that you can always update yourself on the credit rating of companies you are interested in.