From score to rating: how your creditworthiness assessment change.
Credit score and credit rating are two different kind of evaluation
We've talked many times on this blog about the difference between credit score and credit rating: they both are creditworthiness assessments, but the data and information on which the evaluation is based are different. As a consequence, also the results can be different.
But how much can the assessment actually change?
Credit rating's definition and process
We just stated credit ratings and credit scores are two different methods of assessing creditworthiness.
A credit rating is an opinion on a debtor's ability to fulfill its obligations. To assess whether a company will be able to generate the resources needed to repay its debts, the analysis focuses on three elements:
- quantitative data: which provide insights on the economic-financial situation of the company;
- credit history data: which report the borrower's behaviour towards the banking system (payments timeliness, bank account usage, amount of existing credit lines, etc.);
- qualitative data: i.e. the contextual elements that can affect the company performances, such as the aptitude od the administrative body or the economic and political situation of the countries in which the company operates.
A real example
How much the rating assigned to a company may differ from its credit score depends on several factors.
First, the assessment scales are different. Score classes are generally less detailed and often group several rating classes together. Moreover, while credit scoring systems can be developed by different financial operators, credit ratings can be issued only by the Rating Agencies authorized by ESMA (European Securities and Markets Authority).
Let's analyze the example of Prada Spa and compare the credit score calculated by s-peek to the rating issued by modefinance.
As in the immage below, the rating does not match the credit score: having more information available, a rating conveys a more accurate assessment of the soundness of the company, which goes beyond the analysis of economic and financial situation alone.
Why Your Credit Score Matters
Knowing the credit score assigned to your company is therefore a useful clue to knowing your starting situation and monitoring it over time. The difference with a credit rating depends on the weight of the credit history and qualitative data over the quantitative data. As the credit score reflects the financial situation of the company through its financial statements, the more the credit score is obtained recently after the financial statement publication, the less it should deviate from the credit rating.to learn how to financially
evaluate partners,
competitors and customers