Credit Scoring Model with D&B, NACM & Experian Data

Credit scores can be of various types. While organizations self-calculate their customer’s credit score chart, leading credit bureaus such as D&B, Experian, Equifax, NACM has also their credit score ranges.

For new customers, the credit score is calculated with the help of the following steps:

• Aggregate credit data for the new customer from credit agencies and credit groups you trust (like D&B and NACM)
• Apply the credit data in your scoring model to get the respective credit score, risk class, and credit limit.

Organizations might have a single credit scoring model or multiple credit scoring model types based on their business requirements. For instance, global enterprises have multiple scoring models based on their business units or customer segments. Some organizations implement machine learning to develop their credit scoring models to monitor credit risk in real-time.

To build a reliable credit scoring model, your credit teams should extract credit information from the following sources:

• Credit Bureaus like D&B, Experian, Equifax, CreditRiskMonitor, CreditSafe
• Trade Credit Groups like NACM
• Public Financials (P&A, Balance Sheet, etc.)
• Alternative sources like Personal guarantees

Additionally, the following variables should be included in your credit scoring model:

• Failure Score (previously known as Financial Stress Score) (D&B)
• Delinquency Score (previously known as Commercial Credit Score) (D&B)
• Paydex (D&B)
• Average DBT (D&B)
• Predictive Scoring (NACM)
• Total Employees (D&B)
• Years in Business (D&B

Traditionally, credit teams are used to monitor credit performance in a specific periodic such as monthly/quarterly/annual credit reviews. However, credit teams should review their customers daily to ensure real-time visibility into the customer risk profiles. With daily credit risk monitoring, credit teams will be able to monitor frequent changes in their customer’s credit profiles, payments profiles, and filings.

This Credit scoring model is designed to set credit limits and build credit risk scorecards in two steps.

• The first step is to evaluate the entity level risk based on financial and operational business factors in order to complete the risk categorization. Simplified credit scoring model with various customizable parameters such as D&B, Experian and NACM have the ability to automatically assign credit limits, making sure the accounts with the highest risk are identified.
• The second step is to compare the calculated credit limit with the existing credit limit to predict the accuracy and make corresponding risk and sales decisions.

A credit score that uses different types of credit information to evaluate a customer’s risk is a better measurement than one single factor such as how that customer pays your firm.

Corporate credit scores or credit ratings are provided by independent agencies such as Moody’s, S&P who analyze your customer data to come up with a conclusion of their risk profile.