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Understand Creditsafe's Credit Model

Overview

The Creditsafe Scoring Model combines key commercial, financial, and demographic information, such as trade payment information, public information, key financial ratios, industry sector analysis and performance indicators, to create highly predictive scores.  

Understanding the Model

What does the Creditsafe Scoring Model predict?

The Creditsafe Scoring Model predicts the likelihood of a company failing within the next 12 months.  

How was the Creditsafe Scoring Model created?

bubblerThe Creditsafe Scoring Model was created by our Analytics team who looked at companies that failed over the last 12 months and assessed the commonalities within these failures. We compiled hundreds of variables and looked at their weighting and impact had on the failed businesses. We then selected the most relevant variables to create our model. 

Credit Scores

What does the Creditsafe Scoring mean?

The Creditsafe Scoring Model acts in a way that each one of the 1 to 100 scores directly correlates to a relational level of risk. The high predictive power of the model can efficiently distribute the ‘bad’ companies to low scores (higher risk) and the higher scores correlate to more creditworthy companies. 

What does the Creditsafe Ranking mean?

Ranking companies by their likelihood of going ‘bad’ allows for further and more insightful decisions. A company not only has a score, but this score can also be compared with other businesses of the same industry or other similar-sized entities. 

What are the Creditsafe Scoring Bands?

credit bandsThe Creditsafe Scoring Bands are an easy-to-use method of segmentation which allows you to assess our scoring model into 5 simple segments. The connection between the likelihood of becoming insolvent (fail) and the 5 scoring bands is matched to real-world statistics, allowing thus for a meaningful classification of credit risk. This classification of credit risk does not depend on population percentages, but on population percentages of failure. 

What factors are considered when scoring a company?

Our model uses many sources, including demographic and payment data to determine a company’s score. Just some of the factors include:  

  • Industry 
  • Previous bankruptcy 
  • Number of employees 
  • Age of the company 
  • Legal Filings 
  • Payment History 
credit risk scoring model

Credit Limits

What is a credit limit?

The credit limit is our recommendation of the total amount of credit that should be outstanding at one time. 

It is estimated using the ‘Risk Weighting’ and key balance sheet figures for companies that file accounts; or using other non-financial information for companies which do not. 

What is a maximum credit limit?

The maximum credit limit for companies is determined by these factors:  

  • For a Public Limited Company (PLC) scored 30 and above: $50m 
  • For a non-PLC company scored 30 and above: $1m 
  • For all companies scored below 30: $0

Key Definitions

How do we define a “failed” company?

Creditsafe considers the failure of an organization as going 90-plus days beyond terms within the next 12 months or that the business will go bankrupt. 

Questions about our credit model?

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