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Decoding Equifax’s Credit Risk Score

Published By Janet Gershen-Siegel at November 4th, 2017

Equifax’s Risk Score is a product developed by this credit reporting agency to help businesses understand what it is they are getting into with businesses (and even individuals) when it comes to loaning money or extending credit. The concept behind it is to show the risk of a default within a set period of time.

The Credit Risk Score in a Nutshell

Equifax’s Risk Score serves as an enhanced risk model intended to aid in predicting theprobability of a business becoming 90 or more days late within 24 calendar months.This report provides a rank-ordered risk perspective to try to supportmore informed credit decisions, help to minimize risk exposure and to increase portfolioprofitability. The idea is to strengthen a business across all portions of the life cycle of an accountwith comprehensive scoring tools backed by available Equifax business credit information.

Deeper Credit Evaluation Drives Smarter Credit Decisions for Creditors

The Equifax Risk Score is designed to deliver a multi-faceted business viewpoint based on factors such asdepth of credit information,length of credit history, and delinquency history.Five separate scorecards are broken down with a combination of statistical analysisand business requirements in order to create the most comprehensive business perspective the company can possibly provide. The Equifax Risk Score is meant to help pinpoint new marketing andcross-sell opportunities or to identify areas of risk exposure when it is combinedwith the Equifax Bankruptcy Navigator Index.

With the Equifax Risk Score, the company provides a predictive perspective in orderto assist in speeding up credit decisions while at the same time adding a layer of protection against risk at everypoint in the life cycle of the account. The Equifax Risk Score is meant to help businesses to increase their targeting precision, appreciate newexpansion opportunities, and streamlinetheir collections efforts and to mitigate their riskexposure with powerful scoring insights.

Key Benefits for Creditors

The key benefits are as follows:

  • Strengthen portfolio quality – when companies look to develop and build a portfolio of investments, the report is intended to help show which are the better investments or at least which are the worst investments to be avoided
  • Increase acquisition – when better investment opportunities are identified by the report, companies presumably will be more interested in making investments
  • Manage risk exposure – for companies looking to extend business credit, the Equifax Risk Score is designed to better predict a late payment
  • Drive more effective collections – for companies on the credit-giving side of the equation, the Equifax Credit Risk Score is meant as a means of understanding which companies are the least uncertain credit risks. When a company only works with less risky debtors, then collections are expected to be easier.

What Debtors and Businesses Seeking Credit Need to Know

The Equifax Credit Risk Score is the product of company research and records. It is driven by many of the same things which drive all business credit scores, namely:

  • Time in business
  • Credit utilization rate
  • The number and amount of UCC blanket liens
  • The number and size of liens and judgments
  • Any bankruptcies on the record
  • Payment history
  • The number and size of delinquent payments, if any
  • A comparison between the company in question and other, similar businesses within the same overall industry

How to Improve Your Company’s Equifax Credit Risk Score

Much like with all other credit scoring mechanisms, your small business will do best if you pay your debts on time and in full, as often as possible (100% of the time, if that is at all possible). You will also need to keep your overall credit utilization rate at 30% or less of your total available credit and try to avoid judgments, liens, and bankruptcies as well as you can.

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