Written by Alice Payne
Posted on 16/02/2016

How credit rating decisions are made

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Credit reports provide crucial insight to guide credit rating decisions. Without this systematic process to collate and assess data, and a uniform approach through which to evaluate applicants against risk-based requirements, credit lending would be significantly riskier.

The evolution of today’s credit reports

In previous centuries, credit rating decisions followed a very different process. Credit reports didn’t exist and the decision to extend or deny credit was often based on community knowledge and personal reputation. However in larger communities, where local information wasn’t as readily available, tradesmen pooled information, eventually creating nationally-applicable databases. In time, this gave way to credit scoring systems in order to create the most accurate data – leading to the credit reports we know and love today.

The value of credit reports

Credit reports draw on in-depth data and analysis to deliver the greatest accuracy and make sure credit ratings help businesses make better decisions. Credit rating is important because it provides numerous benefits including:

  • Preventing doubtful and bad debt;
  • Optimising client relationships;
  • Understanding commercial changes affecting companies; and
  • Gaining more incisive insight into customers.

What’s in a credit report?

It’s critical to know your customer. Supplementary research and face-to-meetings can certainly help, but a credit report provides irrefutable knowledge of clients’ and prospects’ financial health, performance and payment culture. It also highlights any changes to individual financial circumstances and takes into account wider changes impacting the industry. Through a Graydon UK business credit report, you can make more informed decisions about extending credit to a company – ensuring your business territory is as familiar as possible. In addition you can gain a better understanding of the payment behaviour and recommended credit limit of customers and prospects to optimise your finances. This ensures you can lend enough to benefit your revenue in a considered manner and protect your business from excess risk.

Graydon’s reporting advantage

Graydon UK business credit reports have a number of features that ensure they are the most insightful and provide the greatest value to businesses. These features include:

  • Dashboard design: Each Graydon report delivers an enlightening snapshot of the company's risk and credit score.
  • Credit scoring and limits: More than 2,000 characteristics are used by Graydon to define a company's credit score. To supplement this, Graydon also provides a monthly credit guide.
  • Xseption: This tool flags up in advance any unconventional behavioural patterns or financial results. Graydon draws on a range of data to create these early warnings, including suspicious activity such as County Court Judgements.
  • Director information: Graydon delivers comprehensive company director information, including a record of all previous appointments.
  • Operational information: With this tool you can determine the number of employees and NACE/SIC codes.
  • Payment behaviour: In order to evaluate a company’s likelihood of late payment, you can gain insight into the payment behaviour of a company.
  • Five year financials: Graydon delivers five years of company financial information for you to review, including turnover, profit and loss.

A continuously optimised credit rating system

Graydon works consistently to ensure its credit reports and credit rating systems are enhanced for accuracy. For example, last year Graydon changed the way it devised its credit scores, giving greater emphasis to working capital due to its increased weighting in creditworthiness. Similarly, it takes into account any structures of concern. For example, whether the company is involved with other companies, whether they have a deepening financial dependence and how that could impact their level of risk.

Graydon is also able to draw on its significant network to provide personal insight into businesses’ payment cultures; Graydon’s clients review their own interactions with specific companies to deliver a depth of knowledge that traditional credit rating systems don’t have access to. Drawing on its considerable resources, Graydon is also able to benchmark companies across its database, identifying where businesses lie in the spectrum of creditworthiness.

How to use a credit report

Credit reports can be used for a range of different purposes, but the value you derive is heavily influenced by the goals of your business and the knowledge you have already amassed. For example, if you have an established background in finance, it can be helpful to delve deeper into the report and examine the financial ratios that are drawn from annual accounts. At the other end of the spectrum, if you’re looking for high-level information, credit reports also provide a dashboard with a valuable snapshot of different aspects of the report. You can use this to focus just on individual elements, such as credit scores and payment behaviour, depending on how in-depth your requirements are.

If you want to improve your finances by extending credit to clients who will support your revenue and minimise your risk, credit reports can provide the insight and analysis you need to make informed decisions and help your business grow.

Related topics

Looking for more information about preventing credit risk? Download our popular guide ‘Understanding Credit Risk for Dummies’.


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