What is Company Credit Rating Data & How to Use It
Company Credit Rating Data regards to information about a company’s financial situation and performance. This data type is often used to understand and assess a company’s ability to meet their contractual obligations regarding their debts.
What is Company Credit Rating Data?
Credit ratings apply to businesses and government, while credit scores apply only to individuals. A credit rating is a quantified assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. Credit ratings are never static, they change all the time based on the newest data, and one negative debt will bring down even the best score. Credit also takes time to build up. An entity with good credit but a short credit history is not seen as positively as another entity with the same quality of credit but a longer history. Debtors want to know a borrower can maintain good credit consistently over time.
There are factors credit agencies take into consideration when assigning a company credit rating to an organization. First, the agency considers the entity’s past history of borrowing and paying off debts. Any missed payments or defaults on loans negatively impact the rating. The agency also looks at the entity’s future economic potential. If the economic future looks bright, the Company Credit Rating tends to be higher; if the borrower does not have a positive economic outlook, the company credit rating will fall.
Who uses Company Credit Rating Data and for what use cases?
In the course of your business, it may be necessary to check other companies credit scores and ratings to help you manage your cash flow more effectively. By understanding the financial stability of the businesses you deal with you can safeguard your business from expensive errors. Credit assessment and evaluation for companies and governments is generally done by a Company credit rating data agencies from who the data can then be bought.
Company credit rating data providers use highly predictive analytical tools that employ the latest advanced, statistical techniques to combine commercial and other key information, including trade payment information, public information, key financial ratios, industry sector analysis, and other performance indicators, providing customers with a wealth of data on their existing and future customers.
For instance, a good company credit rating data supplier compiles hundreds of variables of failed businesses and looks at the weighting each variable carries, along with the impact each variable had on the failed businesses, and uses this data to create a credit scoring system that predicts a high percentage of business failures up to 12 months prior to insolvency. This short-term credit rating that reflects the likelihood of the borrower defaulting within the year has become the norm in recent years, whereas in the past, long-term credit ratings were more heavily considered. Long-term credit ratings predict the borrower’s likelihood of defaulting at any given time in the extended future.
Data providers verify and transform data, feed it into credit algorithm and products, to create the most up-to-date and accurate data on ratings and limits, financial results, officer information, payment performance data, plus much more.
Company credit rating data may include credit scores based on an A – E international credit rating standard, allowing you to compare credit ratings on millions of companies worldwide instantly online. Although some data suppliers use their own system of scoring, company credit rating data providers should include a suggested credit limit endorsed by credit insurers.
The data may include your customers’ financial performance over the past few years, including turnover, profit and loss, shareholder funds plus much more. And also trade payment history, including how quickly your business customers pay their invoices. You should be able to view the number of overdue or late payments and their value. You should also be able to view adverse credit information including CCJ’s provided by the courts. A reliable credit rating vendor should offer 24/7 monitoring and real time notifications of credit risk changes delivered direct to your inbox. And also director information on the performance of current and previous directors and shareholders. Company credit rating data suppliers should provide training and support on account management.
Providers may also supply global, national and regional scale credit ratings on businesses, as well as detailed research on economies, credit trends, hot topics and special reports and real time notifications of updates and market movements.
Company credit rating data is also important for businesses looking to borrow. Credit ratings for borrowers are based on substantial due diligence conducted by credit rating agencies. While a borrowing business will strive to have the highest possible credit rating since it has a major impact on interest rates charged by lenders, the rating agencies must take a balanced and objective view of the borrower’s financial situation and capacity to service/repay the debt.
A credit rating not only determines whether or not a borrower will be approved for a loan but also determines the interest rate at which the loan will need to be repaid. Since companies depend on loans for many start-up and other expenses, being denied a loan could spell disaster, and a high interest rate is much more difficult to pay back. Credit ratings also play a large role in a potential investor’s determining whether or not to invest. A poor credit rating is a risky investment; it indicates a larger probability that the company will be unable to make its bond payments.
Investors and other market participants may use credit ratings to investigate the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions. For instance, in considering the purchase of a municipal bond, an investor may check to see whether the bond’s credit rating is in keeping with the level of credit risk he or she is willing to assume. At the same time, credit ratings may be used by corporations to help them raise money for expansion and/or research and development, as well as help states, cities, and other municipalities to fund public projects.
What are typical Company Credit Rating Data attributes?
Typical Company Credit Rating Data attributes include how businesses are rated for credit-worthiness by:
- Payment history
- Credit utilization
- Credit history
- Types of credit
- New credit
How is Company Credit Rating Data typically collected?
Data providers gather data from financial statements or company registries and combine it with scoring algorithm, resulting in accurate data. The data is verified, transformed and processed by merging and cleansing, and it is linked through a surveillance system to ensure every piece of data is formatted and distributed in the correct way for the accurate purpose. The data allows you to map an accurate picture of a company’s payment performance and see how they rank against their industry regarding how they pay their bills.
Data can be globally sourced on local levels, using information from local registries, local publications, debt collection sources plus more. Data providers can collect and analyze how millions of invoices are paid daily from millions of tradelines worldwide. Built on real life payment experiences from real companies, it gives your company accurate insights into how invoices are paid throughout the world. This information is then built into a scoring model, allowing all aspects of the available information to be taken into account when scoring a company.
How to assess the quality of Company Credit Rating Data?
The quality of Company Credit Rating Data should be assessed to ensure:
- It is up-to-date in real time.
- It is validated using various techniques from data issue tracking, certification and statistic collection to workflow management and aggregate-based verification.
- It has a Data Governance framework which ensures the provider maintains the quality of the information they provide to clients.
- Regular checks should be carried out to check for errors and duplications.
How is Company Credit Rating Data typically priced?
There are several models of pricing for company credit rating data. Data agencies typically receive payment for their services either from the issuer that requests the rating or from subscribers who receive the published ratings and related credit reports.
Issuer-pay model - Under the issuer-pay model, rating agencies charge issuers a fee for providing a rating opinion. In conducting their analysis, agencies may obtain information from issuers that might not otherwise be available to the public and factor this information into their ratings opinion. Since the rating agency does not rely solely on subscribers for fees, it can publish current ratings broadly to the public free of charge.
Subscription model - Company Credit Rating Data agencies that use a subscription model charge investors and other market participants a fee for access to the agency’s credit database.
What are the common challenges when buying Company Credit Rating Data?
A common challenge when buying company credit rating data is ensuring the data is up-to-date.
Critics of the system also point out that the ratings are available only to paying subscribers. These tend to be large institutional investors, leaving out smaller investors, including individual investors.
In addition to this, the rating agencies using the subscription model may have more limited access to issuers.
What to ask Company Credit Rating Data providers?
There are several questions buyers may want to ask Company Rating Data providers, such as:
- How often is the data updated?
- Can the data be customized for my business needs?
- Do you supply additional services like consulting on how to interpret the ratings?