Credit Score Index – simply explained

Key facts at a glance:

• A credit score index is a tool for assessing the creditworthiness and solvency of a company.

• A credit score index consists of a point scale, where a low score indicates very good creditworthiness and a high score indicates poor creditworthiness.

• The default probability of a company can also be derived from the credit score.

What Is a Credit Score Index and What Does It Indicate?

The credit score index is a tool for assessing the creditworthiness and solvency of a company. Such indices are compiled by so-called business information agencies. These are service providers that collect company data, derive credit information from it, and make it available for a fee. The term "credit score index" (Bonitätsindex) was originally coined by the agency Creditreform and is now in common use.

Specifically, a credit score index consists of a point scale that can vary depending on the business information agency: at Creditreform, it ranges from 100 to 600 points. Although the scales of the individual providers differ slightly, it is common that a low score indicates excellent creditworthiness. A high score, on the other hand, reflects insufficient creditworthiness.

Creditworthiness Versus Default Probability

The credit score is accompanied by the derived percentage default probability. This value shows how likely it is that a company will be unable to repay a future loan, for example. Credit reports are therefore often important benchmarks for banks' lending decisions. Whether a company receives the loan it applied for — and under what conditions — often also depends on its credit score index.

However, not only financiers rely on the indices of credit agencies: service providers, suppliers, and insurers also regularly check the credit score index before entering into partnerships or concluding contracts. The index also allows forecasts about what payment behaviour a company will exhibit and whether there may be an insolvency risk. The latter is usually the case with a very high score.