Developing the Credit Score Model Through the Common Use of Financial and Qualitative Indicators in the Evaluation of Creditworthiness

Abstract

The developed credit score model represents an innovative and advanced way in the credit rating process that uses both financial and qualitative indicators in estimating creditworthiness. in order to develop the model a research has been carried out in the croatian banking sector and among the consulting companies involved in the process of creditworthiness. the model has been developed based on the findings and conclusions from the conducted research and contributes in the economic science, specifically in the field of innovation and competitiveness. The balance sheet data and the indicators originating from the financial statements can be used to determine how a company was performing in the past and how successful it was. But this information tells us very little about the quality of management, market share, company plans, production process, organizational structure, etc. and nothing about the directions in which the company is developing. This means that during the process of evaluation of creditworthiness a risk analyst needs much more information than the annual financial statements can provide. That is why qualitative factors must be also considered when estimating creditworthiness. The aim of this paper is to research the importance of the common use of the proposed qualitative and financial indicators in the process of estimating creditworthiness, and, in addition, to propose a model based on the resulting research findings. In the proposed credit score model, the final credit rating is determined by the synthesis and common scoring of financial and qualitative indicators, which ultimately reflects internal and external factors that directly affect the operations of any business entity. The proposed model will certainly allow a simpler and better rating score of small, medium and large companies, and with its simplicity it will contribute to the analysis of each business entity. In the model itself, the optimal choice of financial and qualitative indicators and their weighted values were used to make a more reliable credit rating score considering the internal and external factors affecting the business. Determining credit rating by applying financial and qualitative indicators provides comprehensive and credible information about the business entity and its business risks and thus allows the making of punctual and correct business decisions, i.e. wrong business decisions are prevented.