AI And The Future of Business Credit Scores

According to PwC Global, the total contribution of AI to the global economy is expected to hit $15.7 trillion by 2030. A sector which is set to be largely impacted by AI is credit scoring. Currently, traditional credit scoring models have been shown to be inadequate. An example of this is FICO. FICO relies on the past payment history of individuals as well as other aspects which are not suited to predict future performance. To solve this issue, new technology and software has been created to improve on the way data is read and collected. By doing this, the way credit scoring operates will be improved. 

AI will revolutionize credit scoring

AI can be used to be integrated into credit scoring models to discover hidden relationships between variables. Traditional credit scoring models are not able to do this as they are only able to consider one variable at a time. Due to this, AI-based credit scoring models are able to do a more thorough evaluation of variables and data, than traditional credit scoring models can. An additional benefit to these models is that they are able to improve themselves by using the new data. 

An example of this would be TrackStar.ai. This company uses a machine learning (ML) solution as well as an application programming interface (API). The ML solution offers lenders the opportunity to leverage thousands, if not millions, of dispute records, alternative data and the company’s data set through the API. This would be able to better predict the borrowing potential. This would ensure that customers would be able to be granted better loans. If models such as this are integrated into the existing systems of financial service firms and lenders, they would be able to gain insight into which credit items, specifically the negative credit items, could be removed from a customer’s credit history. This would result in them gaining better credit and being able to be granted loans easier. This would also be able to assist businesses in gaining better business credit.

Defining business credit

Similarly to personal credit scores, business credit scores are assigned scores which depicts the business’ creditworthiness. Good creditworthiness will allow businesses to apply and obtain loans. Higher business credit scores are considered as good creditworthiness, as it shows that the business has strong financial responsibility. This will ensure that businesses are able to obtain loans easily. Lower business credit scores are considered as bad creditworthiness, and would make it harder for loans to be approved. There are ways to build good credit. An example of this is making use of Net-30 accounts. 

Net-30 Accounts

Net-30 accounts offer businesses the opportunity to improve their credit by purchasing an item or service, and paying for it at a later stage, which is usually 30 days. Once businesses purchase a product or service, the account will allow the businesses 30 days to pay for the product or service in full. This is what is referred to as vendor credit, which the net-30 accounts report to commercial credit agencies. This, in turn, acts to improve scores by showing that the business has strong financial responsibility. It has to be noted that these vendors may require an initial purchase. Only then will they offer net-30 account options. 

There are a range of net-30 vendors that report to major business credit bureaus. The major business credit bureaus are Dun & Bradstreet, Experian Business and Equifax Small Business. Dun & Bradstreet is an important business credit bureau. They have a range of net-30 vendors that report to them, such as Uline, Quill, Office Depot/OfficeMaxand Grainger, to name a few. These vendors offer a range of products such as office supplies, cleaning agents, and even industrial solutions. Experian Business is another important business credit bureau. The net-30 vendors that report to them are Shirtsy, Strategic Network Solutions and Crown Office Supplies, to name a few. These vendors offer a range of products such as shirts, computers and even sanitation supplies. Equifax Small Business is not as popular as the previously mentioned bureaus, but is still important. For businesses interested in more information about net-30 accounts, and other ways to improve their credit scores, The Really Useful Information Company (TRUiC) offers more information to read more here.

The takeaway

Seeing that AI is set to dominate the credit scoring sector, businesses and financial services should be prepared to make use of and integrate AI into their existing systems. To do so, professionals should stay informed, educated and up to date about AI and its new developments. 

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