Easy to use and efficient early-stage credit risk indicator, providing immediate assessment of credit applicant’s solvency. CrefoScore corresponds to an estimate of expected probability of default over time horizon of 12 months. The higher the CrefoScore, the higher is the probability of default.

CREDITREFORM LATVIJA daily updates CrefoScore for all enterprises registered in the Commercial Register. CREDITREFORM LATVIJA has developed CrefoScore calculation methodology in cooperation with CREDITREFORM Risk Management (Germany).

Classification of CrefoScore

How to use CrefoScore?

In daily credit risk management practice assessment and classification of client into risk classes is highly useful for allocation of appropriate cooperation conditions. CrefoScore scale can be divided, for example, in three intervals depending on company’s credit risk policy (see below).
Example
from 100-400 - credit accepted
from 401-499 - individual decision
from 500-600 - credit rejected
In example above CrefoScore index 500 has been set as threshold for automated rejection of credit transactions. Depending on company’s risk management strategy, it is advised to perform individual cut-off points’ optimization.

Advantages and opportunities

Data and database used

CrefoScore is built using the results of extensive CREDITREFORM research. The following insolvency predictive data listed below are included in estimation procedure and daily update of CrefoScore:

How does CrefoScore depict credit risk?

The uniform calculation procedure of CrefoScore and analyses of companies’ movements (improvement or deterioration of creditworthiness) within particular time periods provide an opportunity to determine probability of default for each credit risk class.

Exponentially increasing default rates document CrefoScore’s feature to separate low-risk credit transactions from those with high default risk. Through this discrimination power CrefoScore proves to be a highly valuable indicator for credit risk management.