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Examining Credit History Reports

Simple Alliance, Kenya Limited

Credit Score Basics

A credit report basically summarises an entity’s credit history or history of credit. This review explains the entity’s behaviour in managing fiscal obligations as well as their bill paying trends.     

Why Study a Credit Report

Your study of customers’ credit history reports enables you to detect potential debtors’ default signs. This analysis also helps you to appraise your business’ status as potential debtor for your creditors.  Such examination is useful for both business credit and personal credit.

Core Elements of a Credit Score

While evaluating credit reports, be sure to carefully look at aspects such as:

  • Business background and information
  • Payment history
  • Business age
  • Credit risk ranking     
  • Business information report filings
  • Legal aspects

Business Background and Details

Be sure to scrutinise potential debtors’ particulars such as:

  • Name
  • Address
  • Phone number
  • Business type
  • Number of workers
  • Industry
  • Incorporation status
  • Key officials
  • Sales figures  

Carefully look at the above details. Make sure they rhyme with the ones in your records. Get in touch with your potential debtor for an explanation of any inconsistencies. This examination will protect you from phony businesses that would hide the precise ownership. Such businesses usually seek to hide important details.     

Payment History

Your payment history analysis involves reviewing previous payments. Major phenomena to look out for include:

  • Payment trends
  • Timely payment instances
  • Collection proceedings
  • Payment patterns in comparison with those of industry peers    

Payment trends help you to predict potential debtors’ current income streams. Comparing prospective debtors’ payment trends with those of peers within your industry helps you to establish if your potential clients’ performances are as per industry norms.  

Credit Risk Position 

Various factors, for instance, legal filing or previous payment behaviour, are employed to arrive at the credit score.  This rating helps you to evaluate possibilities of delinquent or late payments. You need to seriously examine ‘high risk’ rankings.    

Business Information Report Filings

This report informs you about a prospective debtor’s existing leases or liens. Examining the filing gives you an idea of your potential debtor’s credit management behaviour.  Important factors that you could consider include:

  • Number of current credit relationships    
  • Number of debtors assets currently pledged as collateral on loans

Potential Debtors’ Age

The length of time a business has been operational generally reflects better money management aptitude. Start-up businesses rank lower in this regard. There is no cut and paste rule though. You need to carefully examine young businesses for creditworthiness. To gain some insight, you could examine owners’ or leaders personal credit scores.   

Legal Matters

Scrutinising a credit report for legal aspects helps you to identify potentially unreliable suppliers or risky debtors.  Some legal issues you could look out for include:

  • Unresolved lawsuits
  • Bankruptcy filings
  • Court judgments   
  • Liens

Of utmost importance among the above legal matters are existing liens and bankruptcy proceedings.

Proper scrutiny of credit reports, whether yours, prospective creditors, or potential debtors’, is a significant business skill. Credit scores let you into prospective debtors and creditors’ financial discipline and performance. They apply to both personal credit and business credit issues. Basically, they summarise an entity’s history of credit or credit history report. The reports help you to identify potentially risky debtors as well as unreliable creditors. To discern these facts, you need to look at various elements of   credit reports.  These elements include; Business background and information, Payment history, Business age, Credit risk ranking, Business information report filings, and Legal aspects. Your analysis of these elements will help you make informed credit decisions.

Copyright (C) 2016, Simple Alliance Kenya Limited

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