Monday, December 21, 2020

On December 21, 2020 by Decadeofhits   No comments

Since the financial needs of enterprise like a typical small business are dissimilar from a household credit card or convenience store credit card, credit risk scores are established in a unique way. In competing credit card markets, credit risk scores are simply a probability or an educated guess based on applicant's pay history, credit report data, and a specific calculation of the probability of bad debt. However, in the world of small businesses, business credit reports are a record of who took out that loan, how they made there first loan, if they re-paid that loan, and how those payments are doing. Once all of the information from the credit reports is gathered together, a score is computed. This score is not meant to represent creditworthiness, but calculating credit scores for enterprises is far more sophisticated and less speculative than it is for consumers. There is no single company that you can plug credit risk scores data into so that you can readily determine which creditors are too credit- hungry to extend credit, and which ones have a high probability of being past due. Although the factors under individual non-banks and credit unions may be similar, they do not consistently equate credit risk scores with credit risk candidates.

To determine creditworthiness, the results depend on identifying data, such as physical address, length of credit history, identification numbers, and social security number, which is not that easy for anybody outside a business office to do. Nonetheless, according to business credit reporting agencies, there are 5 key points that separate those companies with higher credit risk scores from those with lower scores:

1. Payment Options Terms

In the world of business, you get what you pay for. If a company is willing to pay an extra $50 for a new credit card, they probably won't be mailing you a personal check. If a company does currently accept consumer credit, they won't necessarily offer you an account at a generous interest rate just because you're "risky". The biggest factor that affects credit risk scores is payment terms; it may be less important for a consumer but it is definitely important for a business. If paying more on credit is too costly or too inconvenient for the debtor, they will simply find another way to pay or they may never make it a month. Businesses do not operate in a vacuum. They have to pay bills and they have operational expenses. If they don't have credit options, they will simply sit on the credit that is already extended to them.

2. Total Amount of Credit 

Total amounts of credit is arguably the most important factor of all. The credit extended to your accounts for a significant portion of your credit score, and it is an upward trend that will pull your score up if you are continually increasing your total available credit. One way to quickly increase someone's credit is to call your creditor and request a increase in the total amount of credit granted. Another way is to simply pay a bill less frequently or doing less driving, etc. The more credit you have extended to you in a certain time period, the more your credit score will increase.

3. Length of Credit History 

By length of credit history means how long you have had your credit extended to you, not the amount of time. It is not such a good idea to open a lot of new accounts in a short span of time in order to increase you score, because you could be digging yourself deeper into a hole. Longer credit histories are preferable.

4. Type of Credit 

The type of credit extended to you accounts for 15% of your credit score. It is a good idea to have consistently good standing accounts if you're planning on getting more credit and "burbon" your credit score. High balances, late payments, and high-maintenance accounts are not attractive factors when it comes to a ranking.

5. Inquires

Your request for credit made by other companies accounts for 10% of your credit score. Keep inquiries to a minimum. Although an inquiry does not necessarily reflect you or how credit-worthy you are, too many Inquires will hurt you a bit if they are too frequent over a short period of time. The rates after you are "bought" after opening a credit card or loan can ranges from 0 to 78 points (for example, 80 if you have poor credit and 0 if you have excellent credit). Inquires done by you are called "Hard inquiries" and are included in this portion of the calculation. "Soft inquiries" are those authorized by the credit bureaus that might (in their opinion) have no actual impact on your credit score. These inquiries come anywhere within the 80 to 230 days of your request and do not count against you just like your own inquiries do.


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