The ABC’s of Business Credit Management: Credit Report vs. Credit Score

In a previous blog we touched on the basics of credit risk management, why it matters, and what you can do to improve your processes around it. This blog covers credit reports and credit scores, two documents that play an important role in business credit management; but do you know the difference between the two? Maybe, but let’s do a quick recap just to be sure. Put in the simplest terms, the relationship between the two is very similar to understanding the relationship between a report card and grade point average (GPA) in school, but let’s dig a little deeper:

What is a credit report?

A credit report is like a report card. It details your customer’s business credit history in different areas and pulls together information from various sources and lenders. A report includes numerous tidbits of information to show a detailed picture of your customer’s credit situation, such as:

  • Types of credit the customer has used in the past.
  • How long lines of credit have been open.
  • Amount of credit used and amount outstanding.
  • Credit inquiries from third parties.
  • Banking information.
  • Public records including bankruptcies and court-related judgments.
  • And more.

What is a credit score?

A credit score is similar to your GPA. Numerical values are assigned to the information in your credit report, weighted, and used to calculate an overall numerical credit score. This gives you a general idea of where the customer falls on the risk spectrum.

Both of these documents have vital information to help you make decisions about extending credit. You wouldn’t want to ask someone with inconsistent report cards and a low GPA to help you with your homework; the end result could be disastrous. The same theory holds true when it comes to extending credit.

Take The Next Step

Now that you understand the difference between these two documents, there’s a lot more to know. The above information only scratches the surface of the many things every financial professional or credit manager should know about how to manage business credit effectively. The white paper below outlines proven best practices and tools to help you quickly seperate good credit risks from bad, gain even deeper insight into customer credit worthiness, and help you increase cash flow. Click below to get started.

Business Credit Management


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