When it comes to obtaining credit information on privately held companies where financial information is often carefully guarded, the quality of the information in a report should be treated with some level of skepticism. As we have often seen, there can be a huge amount of information provided with a great deal of statistics and analyses included. Although a very busy report can give the reader a feeling of comfort as to the quality of the information, it may not tell us what we need or want to know.

Unfortunately, very few credit reporting companies will vouch for the information that is provided, rarely clearly stating that they have confirmed the information through several resources. Instead, what is almost always included at the bottom of the report, in small print, is a disclaimer that the credit reporting agency does not take any responsibility for any decisions made based upon the information presented. Following below is a typical business credit report disclaimer. Please note that when it comes to the completeness, reliability, and verifiability, you are on your own.

“The information contained in this report is provided “as is” without any representations or warranties, express or implied. The credit reporting company makes no representations or warranties in relation to the accuracy, completeness, or reliability of the information provided. This report is based on data obtained from various sources, which are believed to be reliable but are not guaranteed. The recipient of this report is responsible for verifying the information before making any credit or business decisions. The credit reporting company shall not be liable for any errors or omissions, or for any damages resulting from the use of this report, including direct, indirect, incidental, or consequential damages. This report does not constitute an endorsement or opinion regarding the creditworthiness or financial stability of the business.”

When we think about this disclaimer, it should make us pause and wonder as to the validity of the information that is provided. In other words, if we were to read on a credit report that a potential customer has annual sales of $10 million and net profits of $1 million (since statistically speaking a 10% net profit is considered extremely good), we might be inclined to grant this potential customer a significant level of credit based upon those numbers.

But the questions that should come to the forefront include:

  • How was the financial data provided to the credit reporting bureau? Was it in a simple email that allowed for tampering, or it was it sent securely? 
  • Was the financial data verified with audited financial statements, tax returns or other official documentation?  
  • Who was the individual who provided the data? Was it a staff accounting person, the CFO, or the President? 

To what extent we can rely on the numbers in a credit report all depends upon how much credit we are willing to grant. If the amount of credit to be extended is significant, then the numbers have to be verifiable. Verifiability of credit report information is the underlying key factor that every credit manager needs to bear in mind.

So before purchasing any number or type of credit reports, some questions that should be asked to the credit reporting company are:

1) How many sources were used to compile the data?

2) Were the customer’s financial statements used to support the financial information presented?

3) How current is the data?

4) Was the information on the credit report confirmed by the object company itself prior to being published?

In short, the “credit report mystique” pertains to the opaque nature of credit scoring models and lack of data verifiability that in the end can make a credit report mislead sound credit decisions.

Nancy Seiverd, President
CMI Credit Mediators, Inc. 

All Rights Reserved

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