From score to rating: how your creditworthiness assessment change.

There may be a difference between a company's credit score and credit rating. 

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. Better said, the calculation of the credit score is the first step of the rating analysis process.
 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. 
While only qualified financial analysts can properly evaluate credit history and qualitative data, the quantitative analysis is based on numeric data (mainly balance sheets) and can be carried out also by an algorithm. The result is the credit score, which grades the soundness of the company and its economic-financial balance. As above-mentioned, the calculation of the credit score is the first step in the analysis process that leads to the rating. The analysis of qualitative and credit history data can improve or worsen the result, but it partially affects the final rating.

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. In s-peek the credit score is in fact calculated through the MORE methodology, the same used by modefinance in the rating analysis process.

The two results are comparable.

However, it may happen that 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.

Differnce between s-peek credit score and modefinance rating

Why your company should be rated?

A credit rating is a key information for all counterparties. It's a determining factor in obtaining a bank loan, but it also attracts investors for a bond issue, a stock exchange listing, or a crowdfunding campaign.  Once issued, the rating is updated on regular basis. Knowing the credit score assigned to your company is therefore a useful way to know your financial situation and monitor it over time.

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