Credit Score - checkSURE's Credit Rating

Credit score - increasingly this is an important variable in assessing the credit worthiness of a potential customer or supplier. With more information available on just about everything, you might think that devising a credit score is becoming easier. Yet concerns for privacy and data protection ensure that that is not always the case. In commercial credit checking, credit scoring is still a relatively new phenomenon, and there are also some interesting questions that are still being debated. For example, should an individual's personal credit score have an impact on any business that they are managing? Probably, this is irrelevant to the credit score associated with a PLC, but how about to the credit score of a sole trader or partnership? In any case, in the UK, it is a moot point since data protection regulations prevent the companies that devise a credit score from factoring an individual's personal credit rating (even assuming that they know it) into the equation.

For its part, checkSURE does not devise or create its credit score -checkSCORE. We continually search for the best value and most predictive credit score in any of the markets where we source business and company reports.

The current checkSCORE has been developed by the UK data company, N2Check. N2's analysts based the risk score on the UK's most comprehensive econometric study of Corporate Failure undertaken by the Bank of England. The results were published in Working Paper 210. Published in 2003, this paper examined the determinants of failure among individual UK public and private companies, over the period from 1991 to 2001. Using information on profitability, interest cover, capital gearing, liquidity, company size, industry, whether a firm is a subsidiary and overall economic conditions, it concluded that it is possible to construct estimates of the probability of failure for individual companies.

A copy of the bank of England’s Working Paper 210 can be found here.

N2Check have taken the statistically significant characteristics of failure from the Bank's non-heteroscedastic probit model and added to them following a remodelling exercise. Based on external comparisons N2 believe that the Risk Score is the most predictive in the UK marketplace and has improved ability to predict corporate and non-limited business failure. If you have any questions or comments on how N2Check have derived checkSCORE please email in the first instance:

customer.services@N2Check.com

But please beware. No matter how good the checkSURE team think the methodology is behind checkSCORE, we do not advise that any of our customers use only this indicator as a condition for extending credit or assessing the credit worthiness of a prospect or customer. There is much more to deciding to do business with someone or something, than just a credit score. In practically all instances, the checkSCORE is derived from a statistical analysis of publicly available information. If a business is late or abstains from meeting its information obligations (particularly in the case of incorporated businesses), then this will usually (negatively) impact its credit score (if accounts are filed late with Companies House, for example). However, it is difficult, if not impossible, for a credit score to account for business owners who deliberately file or disseminate false or misleading information.

The key characteristics that contribute to the checkSCORE and credit limit calculations for Limited Companies are:

Profitability
Liquidity
Debt serviceability
Group structure
Capital gearing
Tangible Net Worth
Working Capital
Net Cash Flow from Operations
Industry sector
Age of company
CCJs
Company size
Accounts irregularities
Public information on winding up, insolvency or dissolution

The table below describes the checkSCORE for Limited Companies' Risk Bandings in more detail.

D	No Credit Suggestion	Dormant, non-trading or agent.
L	Annual Accounts late in being filed (or too old to allow rating)	This may then display a credit suggestion of N or 0 - meaning unable to give a suggested figure due to lack of information.
0 - 10	Extreme Risk!	This company exhibits characteristics similar to companies who have generally failed. e.g. negative capital employed and / or massive trading loss.
11 - 25	Very High Risk!	This company exhibits characteristics similar to companies who have generally failed although they tend to be less severe. e.g. negative capital employed and / or large trading loss
26 - 40	High Risk!	This company's Credit Limit should be regarded as an absolute limit and may require some form of guarantee
41 - 50	Above Average Risk	Assurances in the form of guarantees may be necessary especially if the Credit Limit assigned is required to be exceeded
51 - 60	Average Risk	This company has an average risk status and should be treated with a degree of caution
61 - 80	Low Risk	There is a high degree of confidence this company will prove good for the assigned Credit Limit
81 - 100	Very Low Risk	There is every confidence this company will prove good for the assigned Credit Limit

The key characteristics that contribute to the checkSCORE and credit limit calculations for Non-Limited businesses are:

Age of business
Size of business
Business type
CCJs
Insolvency information

The table below describes the Non-Limited Business Risk Bandings in more detail.

0 - 10	Extreme Risk!	Extreme Risk - This business exhibits characteristics similar to businesses who have failed.
11 - 25	Very High Risk!	This business exhibits characteristics similar to those who have a high likelihood of failure, and has probably got at least 2 unsatisfied CCJs. Advance payment is recommended.
26 - 40	High Risk!	This business is showing early signs of failure, such as one or two unsatisfied CCJs. Advance payment or enforceable guarantees are recommended.
41 - 50	Above Average Risk	This business is likely to be newly formed or may have an outstanding CCJ. Treat with caution and seek assurances in the form of guarantees of advance payment if the credit limit is exceeded.
51 - 60	Average Risk	This business has an average risk status and should be treated with a degree of caution. It may well be small and/or reasonably newly formed.
61 - 80	Low Risk	There is a high degree of confidence this business will prove good for the assigned Credit Limit
81 - 100	Very Low Risk	There is every confidence this business will prove good for the assigned Credit Limit

Whilst bearing in mind the caveats referred to on this page, we believe that checkSCORE is Britain’s best value commercial credit score.

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