Credit Rating Risk Score

What is the Creditserve Credit Rating Risk Score?

The Credit Rating Risk Score predicts the likelihood of a company still trading over the next year.

The score is a prediction of how financial stable the business is and is a score out of 100, with 100 being a high score or a very low risk and 0 being a low score or a very high risk.  

The score is based on the filed financials as well as other risk predicting factors using other fields within the accounts and the wider credit report.  The credit score calculation varies on different sized companies as per the information the company has to file at Companies House, where filing rules are different for Small, Medium, and Large or Group Companies.  

There is also a separate score for new companies who are yet to file any financials at Companies House.

Please find the Credit Rating Risk Score definitions on Small, Medium or Large Companies where Accounts have been filed:

71-100                 Very Good Credit Worthiness
51-70                  Good Credit Worthiness
30-50                         Credit Worthy
21-29                         Credit Against Collateral
0-20                         Caution - Credit at your discretion
No Rating                 Financial Statements are too old
Liquidated/Wound-up Company is liquidated or is wound-up
Dissolved                 Company is dissolved
Petition                 Petition has been filed

Please find the Credit Rating Risk Score definitions on newly Established Companies where no Accounts have been filed:

51-100                 Low Risk
30-50                         Moderate Risk
0-29                         Caution - High risk
Liquidated/Wound-up Company is liquidated or wound-up
Dissolved                 Company is dissolved
Petition                 Petition has been filed

How is the Credit Rating Risk Score calculated?

The Risk Score calculation was created by analysing failed companies over a 3 year period. 

This analysis allowed us to identify the key data variables that 
are essential in predicting the probability of a company becoming insolvent 
over the next year of trading. 

These variables were then run against our entire database of companies and each key variable was given an appropriate risk weighting.  We then generate the credit score through combining the calculation of these key variables with other current variables. 

Some of the Key and innovative (non traditional) Data Variables we use are:

Age: A newer company wouldn't be penalised for it's age, but an older company will have more history to assist with a calculation.

Size: Small and Medium sized companies are scored using a separate calculation to large sized companies (as per the companies house classifications and subsequent filling rules).

Financial performance: Net Worth, Cash, Profit etc. is compared to previous years and with similar sized companies.

Length of Time between fillings: Analysis has shown that small sized companies who file within the final 1 month of their final filling deadline are up to 9 times more likely to fail than companies who file on time.  Many companies fail just before the companies house filing deadlines. 

For large companies No Rating is provided if the accounts are filed late.

Ratio Analysis: Return on assets employed etc.

Comments from Independent Auditors: Adverse comments would affect theCredit Rating Risk Score.

Age and Number of Directors: The age of Directors and the number will have an impact on the risk, with older directors and companies having more directors are less of a risk.

Director’s history and performance: If a director is associated with companies which are insolvent or have adverse information this may affect the score. The number of directors and changes within the management of the company is also considered?

Group Influence: If the company is part of a group, the companies within the group will also be analysed to look for adverse information such as insolvency and the presence of any such information would affect the score.

Business / Company Demographics: The Location of a company and the Industry it is in (covered by the SIC code - Standard Industry Classification Code - Filed when the company registers at Companies House, can have affect on the score, if the area or SIC code, has seen an increase in insolvencies.

Mortgage Data: The amount and number of mortgages against the company will also affect the score.

The Current and more Traditional Data Variables:

Industry insolvency trends:  Analysis across the country and adjusted on a quarterly basis

Number of CCJ’s: More County Court Judgements, have a greater affect on the risk score.

Value of CCJ’s: The larger the value of the County Court Judgements, the larger the score is affected.

Frequency of CCJ’s (how often and how recent?): If a company is gaining CCJ's / County Court Judgements within a short space of time, this would be considered an increased risk and would have a big affect on the score.

Time critical filings: Any documents which are over due for filing at the 
registry would suggest an increase in risk and would also have a large affect on the score or even a suspension of the score until documents are filed.

Industry Analysis: To ensure our credit rating risk scores take into consideration the problems that companies are facing in the current economic climate, we have taken the results through an additional stage of analysis to reflect the latest industry trends in insolvencies. 

The ratings have then been further processed to reflect the insolvency trend by industry SIC code ensuring that companies in the worst affected industries have their ratings reduced appropriately.  This analysis get done on a quarterly basis ensuring the scoring model keeps pace with changing trends,

As a positive by-product of these changes we are able to reassess the insolvency statistics quarterly and alter the ratings both as a whole and by industry so that we continue to have the most up to date and relevant rating possible.

In addition to the Rating algorithms we have for Limited Companies, we also have a separate algorithm for Non Limited companies.  As no accounts are filed this uses other fields and demographics for predicting a rating score.  The score predicts the chance of getting a CCJ in the next year, as apposed to still being solvent.

How often is the Risk Rating Risk Score calculated?

The Risk Rating Risk Score is calculated daily and is entirely automated, there is no manual calculation required to manipulate or adjust the credit rating risk scores. 

Daily feeds are taken from a number of data supplies to ensure the database update scores on a real time basis. 

If a company submits its latest accounts to Companies House, then as soon as these are available to the public (usually 10 working days) the documents will be analysed within 48 hours and updated on the database. 

As soon as this is completed the company’s credit risk rating risk score will be adjusted based on the latest filed accounts. 

The system also continually incorporates the following time critical information, which updates the credit rating risk score on a real time basis:

Companies House Gazette
London, Edinburgh & Belfast Gazette
Registry Trust CCJ Data 
High Court Writ data

What is the Credit Limit?

The company credit limit is our recommendation of the maximum amount of credit that should be extended to the company at any given time.

How is the Company Credit Limit calculated?

The Credit Limit is calculated by looking at a company’s financial 
position in great detail. 

We look at critical financial fields and combine these with the Credit Rating Risk Score to calculate the credit limit. 

The critical financial fields we use include:

Turnover - on Medium and large companies where available.  Typically if a company has a positive rating and the above financial fields are all of high values then you can expect this company to have a reasonable credit limit, if these values are low (or negative) then the credit limit decision will reflect this. The above financial items are standard for credit assessment terms.

Net Worth
Working Capital
Net Cash Flow Operations
Debtors & Cash
County Court judgments - Information is received from the Registry Trust about County Court judgments or 
Scottish Decrees brought against companies for non-payment.  The matching is done on name only and shows exact, probable and possible matches. A judgment must be paid within a month of being issued. If the judgment is paid off within the month it is removed and will not be shown in the report. If the judgment is paid after one month then the details remain on the system but will show the judgment as satisfied.