Credit and Risk Scoring

Credit scoring is a statistical analysis performed by lenders and financial institutions to calculate a person's creditworthiness. Credit scoring is used by lenders to help decide on whether to extend or deny credit. A credit score can impact many financial transactions including mortgages, business loans, auto loans, credit cards, and private loans.

A credit score is influenced by five categories

  • Payment History

  • Types of Credit

  • New Credit

  • Current Debt

  • Length of Credit

Lenders use credit scoring in risk-based pricing in which the terms of a loan, including the interest rate, offered to borrowers are based on the probability of repayment. In general, the higher credit score helps the borrower get better rate from the financial institution.

There are 3 main credit reporting agencies which keep a record of the factors that will influence credit score - TransUnion, Experian, and Equifax (and Illion formerly Dun & Bradstreet in Australia). Data is collected and shared with these agencies to form a view on your credit score.

Where Ledgerium Blockchain comes into play is we are able to validate and ensure that the data stored and shared on the factors that influence credit score has not been tampered with, bypassing the need to use any of credit reporting agencies therefore saving cost and time. Additionally, as Luca captures all e-invoices transactions we are able to capture not only those that have defaulted on their payments, which is where data is reported to the credit agencies, but also a more granular level of detail on how fast those that pay on time.

For small businesses as well, knowing their customers credit history will provide guidance on whether they should deal with them or even provide different payment terms depending on their credit score.