Credit checks are a necessary process in understanding a business or a company, and how the company’s finances are. A credit check, sometimes known as a Credit Search is a process of checking into the credit report of a company in order to understand their finances, and their behavior towards it. Running a Credit report is not illegal, and you don’t have to have to ask for permission before you do so, but you must have a legitimate reason for doing so.

Naturally, this means your business is being watched, and a credit search can be done at anytime. Who then can do a credit search on you?

● Building Societies
● Banks
● Potential employers and employers
● Telecommunications company
● Credit Providers
● Letting Agencies

Why do these parties conduct a credit report? A credit report is important to know whether you pay your credit early enough, or the amount of credit currently in your account, and your behavior towards it i.e. how are you managing it?

What does a Credit Report contain?

First and foremost, a credit report is made up of the personal information of the person or company in question. It then goes on to cover more information like the public records of your credit account, and your credit inquiries. All the information present here is usually as a result of the report submitted to the credit bureaus by creditors and lenders.
This information will then be used to calculate your credit score, which will be shown to future lenders to determine if you are worthy of credit or not.
Naturally, the Credit Bureau such as Experian and Trans Union report your credit information at different times, this does not change the content contained in the credit report. In fact, they are usually similar except for a few different information.

Essentially, they all have the same distinct categories which are:
1. Identity
2. Credit information
3. Recent inquiries
4. Public Records

Now, let’s deal with these categories, and a few others in more detail:

1. IDENTITY: This section contains your name, date of birth, Social Security Number (SSN), employment details — past and present, and your previous and present addresses.

2. Credit Information: This contains information that has to do with your mortgages and loans. It also contains the credit cards you have. This section also goes further to provide information about your loan; the type of loan you have taken, your credit limit, your current account balance, your recent payment, the date your account was opened, your highest account balance and so on.

3. History of Payment: This section is sometimes considered the most important; this is because it is what gives an impression of you or your company. Your payment history tells if your credit payment was done early enough, or too late.

4. Public Records: This information is usually made available by the government, whether at the local, state or federal level. This includes events of bankruptcy, purchase of properties, divorces and foreclosures. This also contains any event of criminal convictions.

5. Credit Inquiries: Now, this section simply contains the list of individuals or companies who have asked for a copy of your credit report. This section usually dates two years back, hence companies or individuals who have checked before two years ago are not included. The inquiries are usually between the broad spectrum of “voluntary” and “involuntary”.

Furthermore, it is important that you understand some key terms in credit management.

They include:

1. Credit Limit: This usually refers to the number of times a business or a company has been given a credit extension. This tells you if it’s a company you can trust to not put you in debts.

2. Credit Risk Score: This is a measurement done to determine the probability of a company becoming insolvent in a year. This risk score is usually rated over 100, and it tells you with an easy-to-use metric what chances a company has, or any other risk related to it. This is useful because it helps you know the company to run a business with, and the one to avoid.

3. County Court Judgments: Sometimes, it takes a court of law to settle a debt between two parties. When this happens, it affects the credit score of the company. When you check for the credit report of a company, it contains this, if it ever happened, and the total sum of debt in the last six years.

4. Finance and everything else: When a company chek is done, the financial standings i.e. the financial figures of a company are shown. This includes assests, cash at bank, net worth, operating income, revenue and so on. This is usually contained in a graph and can be downloaded annually for analysis, auditing, and to develop marketing strategies.

5. Directorial and Secretarial Timeline: This timeline is important for seeing all the present and past appointments. This contains the names and details of every individual that has been affliated with the company, and in what capacity this individual ha been involved.

6. Risk Factors: The understanding of risk in a business goes a long way in solving several issues, and even providing the company with better strategic decisions. Risks also contribute heavily to the current status of a company or business.

7. Shareholders: These are the individuals who have invested in the shares of a company. These shareholders own a certain percentage of the company whether in capital or shares.
8. Structure: Sometimes, companies are usually a part of a bigger structure. This means it could be a company owned by a larger holding company which means it is a subsidiary company. The credit report naturally contains this information, and makes it easier to understand financial behavior.

9. History of Event (written as Event History): This basically deals with the history of a company, and the various historic events that have marked its existence. This could be the appointment of a new director, or the changing of the company’s name. It could even be that the company was sold to another holding company.

10. Mortgages: A company keeps record of every completed loan, and outstanding one, and this information is kept at the Company’s house where it can be called for review anytime. Loans are usually categorized through type, status (completed or outstanding), date, and lender.

Here are a few FAQs:

How does one calculate the Credit Risk Information of a Company?

This is calculated through the use of a unique algorithm, which makes use of insolvency rate from the past to create key risk variables.

How does one calculate Credit Limit?

This is calculated by running an analysis of the Company’s credit Risk rating against the financial position of the company.

What factors are responsible for the score and limit of a company?

These includes: the age of the company, its size, its financial performance, mortgage data, corporate influence, directors influence, director’s performance and comments from external auditors.
How often is the Credit Limit and Risk Score Updated?

This is usually done from time to time, as needed.