Credit scoring and financial rating serve to describe the health of a company, indicating respectively the probability of insolvency and the company's ability to meet its financial obligations.

Despite the fact that they are two different instruments, scoring and rating serve the same function, i.e. to indicate the degree of credibility and creditworthiness of a subject by means of a conventional acronym (a score from 1 to 0 or a code).

Credit scoring: what it is and what it is used for

The credit score, or credit score, is an analysis based on statistical models that expresses the creditworthiness of a company. It is calculated by credit agencies or specialised companies using information from the history of the company being examined.

Among the various data analysed to express the credit score are:

• the credit history of the company
• the company's liquidity;
• the debt-to-capital ratio;
• the size of the business;
• the sector in which the company operates;
• financial stability (e.g. good expense management or the ability to generate profit)

To assess the reliability of a company, other data can also be analysed, e.g. the long-term economic outlook or the personal credit scores of the directors, as long as they are mathematically quantifiable.

Based on all this information, the company is assigned a score from 1 to 10 indicating its credit risk, i.e. its ability to service its debts.

Company rating: what it is and how it is calculated

The rating of a company indicates its creditworthiness through a score summarised in the form of an alphanumeric code. The rating scale ranges from AAA, the highest score, to C, which indicates a very high risk.

But how is a corporate rating calculated? Rating agencies formulate their judgement after performing a complex analysis that takes into account quantitative information, such as the economic-financial situation, and qualitative aspects such as the sector of operation and the reputation of the company.

Among the parameters that are taken into consideration in the assessment of the company rating are:

• economic data from the last 3 balance sheets, including insolvencies and protests;
• liquidity;
• the company's solidity, i.e. assets and debt level;
• the company's productivity and profitability;
• the company's reference market and competitive position;
• the company's performance;
• the business plan and future prospects.

Rating agencies are able to assess the reliability of the company in the short, medium and long term, providing a judgement that focuses essentially on future prospects.

There is also another type of rating, the bank rating, which expresses the ability of a company to repay a loan within a certain period of time and which banks give to all new customers. Unlike the corporate rating, however, this index is private and remains at the disposal of the banking institution.

Credit scoring and corporate rating: the differences

Although they are often found together, credit scoring and corporate rating are not the same thing.

The first fundamental difference is in the type of analysis that leads to the formulation of the rating: whereas corporate rating involves the study of quantitative and qualitative data by expert analysts, credit scoring is calculated automatically by algorithm and on the basis of statistical models.

Credit scoring therefore only takes quantitative aspects into account, excluding many of the parameters that are part of the analysis for corporate rating, such as the reputation or business plan of the company.

Another substantial difference lies in the horizon of the ratings: whereas scoring is based solely on past data, providing a historical analysis of the company, rating focuses on the future prospects of companies, indicating their reliability in the short or long term.

Company rating check via API

Scoring and Rating are key indices when it comes to assessing the reliability

Scoring and Rating are key indices when it comes to assessing the reliability of a new partner or customer, and this does not only apply to fintech and credit institutions: e-commerce and leasing companies may also need to check the risk index associated with companies and individuals.

Openapi's Credit Scoring service makes it possible to obtain rating and reliability information on companies in real time via API by entering the VAT number, tax code or company ID in the request.

Depending on the type of service, it is possible to obtain more or less in-depth answers:

• Credit Score Start: allows you to view the creditworthiness of a company by means of a colour that identifies its risk class (green=low risk, yellow=intermediate situation, red=possible liquidity problems);
• Credit Score Advanced: provides information on rating, risk score, credit line and risk severity;
• Credit Score Top: provides information on rating, credit history, public rating and a more detailed profile of the company's economic and financial status.

The processes of verifying the corporate rating of partners, suppliers and customers thus become automated and immediate, to the benefit of operators who accrue credit with new parties every day.

Checking one's rating can also be very useful for other purposes: companies can use their positive rating score to obtain financing at favourable rates or even to enhance their public reputation. Knowing your company's credit rating, moreover, allows you to gain important insights into the health of your company and can be of great help in the self-assessment phase.

 

Would you like to access Credit Scoring services via API,

in a simple, secure and fast way?

You can do so on Openapi.com

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