Business Credit Scoring

In this day and age the computers have become the major decision making tools in many banks and other financial institutions regarding a person or business credit approval. Everyday, big computers which are owned by major banks in the U.S., are filled with various and complicated algorithms to scored their clients’ business credit transactions.

These credit-scoring systems are working good enough for many small business, but unfortunately it is not working well for other business. Often, some transactions that is decided to have low scores will be rejected by the system and applicants will receive rejection letter from the decision which is made the computer.

If you have better knowledge to understand more about credit scoring process, you will have better chance to shape up your company’s credit scoring. You might want to pay attention to some aspects regarding the business credit scoring:

Credit evaluation process is runs simultaneously along with credit scoring.

Credit agencies are utilize these method to make the loan processing faster, to reduce processing costs, to make rates adjustment much faster, judging the credit risks, and to increase the credit decisions objectivity.

Credit scoring is a system using the statistical modeling. 

Scoring systems are programed to forecast the chance of creditor ability in repaying their loans. Most of the systems are using up to 20 aspects when evaluating the worthiness of credit application.

Many credit providers are using credit scoring on transactions below $100,000.

One of the most determining aspects in business credit scoring is the business owner’s credit history themselves. In the 1980s the Fair Isaac Corporation made a research and determined that the personal business owner credit behavior will reflect on their business credit behavior. In simple term; a business owner that pays their own credit on time usually will also make their business company to pay their credit on time.

Some of the aspects in business-related credit scoring are; the business company’s age; the size of the business; the organization form; the company’s credit history; the ratio of debt service to cash flow, the net worth of the business company; average bank balances; and the collections firms or bankruptcies history.

Some big credit providers have made the business credit scoring models of their own. They made some adjustment and modification to suit the lender agencies needs and preferences better. More info available here

If your business credit application is rejected based on the lender provider’s scoring model, you may ask the credit agencies to explain the cause of their rejection. Some credit provider can reconsider the rejection if the applicant requested so, but they will also need some additional credit information as their base of reconsideration.

Some loan provider can consider a high risk credits as long as it meets with their terms and requirement. For high risk credit scoring, the lender agencies are usually will charge higher rates and presenting less advantageous terms for the credit applicant compare to the regular transactions situation. Other lender agencies could ask for credit enhancements to approve the high risk credit application, such as outside guarantees or additional collateral.

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