October 25, 2011

Huge differences found in credit agency ratings

by Jan Harris

An SME could be given wildly different ratings according to which credit agency does the check, according to new research.

With the disparity having the potential to force a business to cease trading in the worst case scenario, accountancy firm Shelley Stock Hutter is calling for the Government to launch a new “code of transparency”.

This would ensure that credit rating agencies revealed the assessment criteria used to calculate how a business is rated.

After analysing the credit reports of 100 private firms, Shelley Stock Hutter found a 150 per cent variation, on average, between the credit limits recommended by Experian, Creditsafe and Dun & Bradstreet (D&B) for the same business.

This type of disparity could mean some SMEs being blocked from securing finance and credit from suppliers.

One small company surveyed was given a credit limit of £7000 by D&B and £290,000 by Experian, even though D&B gave the same company a better credit score than it received from Experian.

A number of factors can affect an SME’s credit rating including changes in accounting reference dates, a change of registered office address and the value of a company’s net assets.

Credit checks have also come under the spotlight today for potentially causing consumers to pay more than necessary for heating and lighting.

Customers who fail routine credit checks by energy companies could be refused access to special offers and could end up being asked to pay a security deposit.

They could also be asked to have a prepayment meter installed, an option which is generally more expensive than other energy tariffs.

Customers can fail a credit check simply because an energy companies makes an error when entering debt information into their system or because payments have been missed in an area unrelated to the supply of energy.

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