What Are Credit Scores or Risk Scores?

A risk score, also called a credit score, is a snapshot of your company's credit risk — a statistical summary of the individual pieces of information on a credit report. The score predicts how likely it is that a company will repay its debts.

Credit scores are used whenever you apply for a small business loan, trade credit, credit card, auto loan, or home mortgage. Credit scoring is used as an objective way to determine the risk that you won't repay the loan. That risk helps determine whether you'll receive the loan, and also what interest rate you'll be charged.

Although many lenders use their own credit scoring systems, the majority use a scoring system called FICO, developed by Fair, Isaac & Company. To develop scoring systems, analysts review hundreds of thousands of credit reports over a period of at least two years to develop risk profiles. Past payment performance, credit use, and credit history weigh most heavily in the credit scoring process. For example, a company using 75 percent of its available credit represents a greater risk than a company using just 25 percent.