What are credit ratings and what can be done to influence them?

Unless you’ve been on the moon there is little chance you’ve missed the advertising by credit agencies telling us all as consumers how a credit score can be so, so beneficial to us all… they quite like them too as they make lots of cash when we forget to cancel our trial subscriptions!

What they don’t say is that the same applies to businesses, of all sizes, and for more reasons than is applicable to consumers. Unlike consumer data, the data about businesses is very variable, prone to error and often opaque. Each agency thinks they’re perfect but the reality is very different.

All this data is wrapped into a single score or rating and used by a multitude of service providers to make instant decisions about whether they will provide credit accounts, use us as a supplier, offer insurance or funding, allow property rentals or utility services without huge cash deposits.

The scoring process is closely guarded because of the apparent competitive advantage it brings. Take a look at this comparison of four scores on a massive global business operating all over the UK. All are based on a 1-100 range with 100 being perfection.

Agency:
1 2 3 4
Score:
100 41 98 12

Imagine if this was your business, with the random element being which of these four sources was being used by your suppliers? With one they’d be falling over themselves to offer services, with another it would be Pro-forma terms only and the explanation for the latter would simply be that their credit agency said you were a bad risk.

Now of course, you can go into battle with the credit agency if you can find out which one it is. But, there are some basics within your control which will make life easier and help you to manage this important area of commerce.