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A credit score is a numerical or classified representation of a company’s credit risk. The score is calculated based on financial data, payment history, industry data and other relevant indicators. The goal is to make risk transparent and comparable. The higher the score, the lower usually the estimated risk of payment problems. The methodology behind a credit score can vary by organization or data source and is periodically updated based on new information.
Within credit management, credit scoring is used as a tool for underwriting and limit setting. It enables rapid, consistent assessment of large numbers of debtors. The score does not replace substantive analysis, but supports decision-making.
A company with a high credit score usually receives a wider credit limit than a company with a low score.
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