Most businesses have heard of the terms credit report and credit scores, but many will confuse the two as they always accompany one another in conversations around credit. However, because both play an essential role in the running of your business, it is crucial that you understand the difference between the two to get a better grasp of how they impact your business.
What is the difference between a credit report and credit score rating?
Credit score rating is a numerical representation of how trustworthy you are; it is calculated from the information provided in your business's credit report. Credit reporting companies calculate your credit score using unique and sophisticated mathematical models that take into consideration various elements from your profile. As your business evolves, your credit scores will also change to reflect your most current situation.
A credit report tells others how well or poorly, you manage your business's finances. It includes general company information such as size, but most importantly, it contains financial information such as your payment history, i.e. how well you pay off your bills and debts.
But why does business credit matter?
Your credit report and credit score are essential information to lenders like banks because they want to know how trustworthy you are and how well you manage your finances. It is necessary information for when applying for banking products such as bank accounts and credit cards.
A good report and credit score rating (ideally 670 and above) will show the banks that you are a trustworthy business that has excellent control over their finances. As a result, you will be able to successfully apply for bank loans and other credit services like a credit card.
Once the bank approves your bank loan or credit card application, you increase your spending power and at the same time, your ability to help your business grow in the following ways:
- They help you buy more and newer equipment
- They help buy more property so you can expand your operations
- Unforeseen expenses or emergency cases
- Expanding into new markets by launching a new product or service
An excellent credit report also protects your assets when applying for a business loan. One of the most significant scoring factors in a credit report is your credit history which is a record showing how a company managed their debts in the past (most banks require documents for at least two years). Businesses who haven't established their credit history will need a personal guarantee to get approved for a loan.
This stipulation exists because there is a lack of evidence that the borrower is responsible enough to pay off their debts successfully. That is why lenders require a personal guarantee where it is necessary to provide an asset like a deed to a house to serve as collateral, for example something of equal value that the bank can claim in the case a borrower is unable to repay their loan.
Finally, a favourable credit report with a high credit score rating is essential in getting better insurance premiums and lower interest rates; they make it easier and cheaper to obtain credit.
Why does business credit matter for lenders?
A highly detailed and meticulous credit score allows lenders to easily visualise the risk level of entering into a business transaction with a new partner. The CR score's ability to help mitigate risk makes it an invaluable tool, especially when expanding into new markets and meeting with new unknown business partners.
Whenever you are entering into a new business relationship, you'll want to make sure that they are a credible and trustworthy company and that your partnership with them will become a mutually beneficial long-term business relationship.
Where to access a credit report?
Now you may be asking yourself how can I check my or a potential clients credit report? The answer is Cedar Rose. We offer a free Cedar Rose Scorecard (CR Score) as part of our Business Credit Reports.
How does the Cedar Rose scorecard work?
The CR score is an award-winning service that can create an accurate credit score even for companies that have little to no financial data available. That is because we use smart AI technology, that we based on a fixed algorithm which blends 14 different parameters to create an accurate score for the company in question.
One of the components that make our CR score one of the best is that each of the 14 factors that form our algorithm is weighted differently. The algorithm is programmed to assign a value according to how much impact each component has on the business.
Each element is given a score between -5 to 5 with 5 being excellent and -5 very bad to produce an overall rating of 0 to 100 with a credit score of 0 representing someone high risk while a score of 100 someone who is a low risk.
Because we score each component individually, we can create a flexible scorecard that adjusts to give a truly accurate and reliable evaluation of a company’s risk level.
With an innovative and adaptive CR score system that was created by certified analysts with over two decades of experience in manual credit risk assessment, you can be confident that our CR scorecard won't ever lead you in the wrong direction.
Instantly and accurately evaluate credit risk for 12 million companies in over 230 countries with a particular focus on MENA members. Make informed decisions for the long-term growth of your company. To order a credit check report visit www.cedar-rose.com today or give us a call on +357 25 346630.