What Is a Business Credit Score? Mapping Your Path to Prosperity


business credit score

Small business credit scores are similar to personal credit scores – except they are specifically ratings for businesses. This type of score is important to a business owner and to the businesses that interact with that small business, such as vendors and suppliers.

What Are Business Credit Scores?

Small business credit scores put a number value on creditworthiness. Lenders, vendors, suppliers, customers, and others can check these types of credit scores. They often do so before deciding to conduct business with a company.

There are three main business credit reporting agencies: Dun & Bradstreet, Experian and Equifax. Small business owners can check their business credit reports, as well as the business credit scores of other entities. Vendors and suppliers often check business credit scores before extending credit, especially to a new customer.

The Differences Between the Major Business Credit Bureaus

The three major business credit bureaus, Dun & Bradstreet, Experian, and Equifax, have unique methodologies and scoring systems. Understanding these differences is key to effectively managing your business credit.

Dun & Bradstreet (D&B)

  • Paydex Score: D&B uses the Paydex score, ranging from 0 to 100, based on payment history. A score of 80 or above indicates prompt payments.
  • Data Collection: D&B primarily focuses on trade credit relationships and payment history with suppliers and lenders.

Experian

  • Intelliscore Plus: Experian’s Intelliscore Plus is a score from 0 to 100, incorporating various factors like credit utilization, length of credit history, and payment trends.
  • Comprehensive Data: Experian combines trade credit data with legal filings and public records, providing a broader view of a business’s creditworthiness.

Equifax

  • Business Credit Risk Score: Equifax’s scoring ranges from 101 to 992, assessing the company’s likelihood of delinquency.
  • Public Records and Financial Data: Equifax focuses on combining public record information with financial data from lenders and creditors.

How Do Business Credit Reports Differ From Personal Credit Reports

You keep your personal and business finances separate. Business credit scores and personal credit cards are also separate, with one exception:

FICO SBSS (Small Business Scoring Service)

The FICO SBSS uses business credit reports and an owner or owner’s personal credit report, and additional financial data to determine creditworthiness. The FICO SBSS is required by the Small Business Administration (SBA), as well as banks, credit unions and other lenders. You need it to get an SBA 7 (a) loan. If you’re going to apply for the SBA 7 (a) loan, you’ll need a personal credit score of 600 or better. The FICO SBSS will be a number from 1-300, with 140 needed for the SBA 7 (a) loan.

Why Does a Business Credit Report Matter?

business credit score - business credit rating helps your business

Credit scores are hugely important in the business world. Here are places where good business credit scores have an impact:

  • Getting financing – you can get a higher loan and a better interest rate with good credit.
  • Getting credit extended from vendors’ and suppliers’ credit reports.
  • Businesses can check the credit scores of other businesses.
  • Insurance providers evaluate your credit risk, which is another reason to build strong business credit.

 

What Factors Affect a Business Credit Score?

business credit score - payment history picture

The same factors that affect personal credit scores affect credit scores for businesses. You can keep your personal score in the high/good range by keeping your personal finances in line. As a small business owner, you can keep your business credit file in the good/low-risk range and get a good company credit score with these practices.

Good Payment History

Build your business’s credit. Pay bills early or no later than the due date. That includes any business loan, insurance bill, and expenses, such as utilities.

Use Credit

business credit report - man using business credit card

Use various types of credit, such as small loans and business credit cards, to establish separate credit records with a mix. Build business credit but don’t over-extend your credit limit. Small businesses need to keep tabs on the ratio of what’s owed versus how much is available to borrow.

Establish Trade Credit

Small business owners should start building a good history with vendors and suppliers with small purchases paid off early or on time.

Keep Personal Credit Scores Good

business credit score - personal credit score on a tablet

Your business’s financial history isn’t impacted by your personal credit scores, except with the FICO SBSS rating, as previously discussed. That’s when the personal FICO score range impacts a business owner’s FICO SBSS rating.

Stay Out of Legal Trouble

If you have any reported tax issues, such as failure to pay state taxes and/or employment taxes, that could impact your business credit report. The big three business credit bureaus look at a business’s payment history and other financial records, and also look at public records. If there are tax issues or legal matters such as liens on a property, that will impact a business owner’s credit and the business credit risk score.

Strategies for Managing and Improving Business Credit Scores

Managing and improving a business’s credit score is crucial for securing favorable financial terms and maintaining a healthy financial profile. Here are comprehensive strategies to effectively manage and enhance your business credit score:

Regularly Monitor Your Credit Report

  • Frequent Checks: Regularly review your business credit reports from major bureaus (Dun & Bradstreet, Experian, and Equifax) to ensure accuracy.
  • Dispute Errors: Promptly dispute any inaccuracies or outdated information that could negatively impact your score.

Optimize Credit Utilization

  • Credit Balances: Keep your credit balances low relative to the credit limits. A lower credit utilization ratio is seen favorably by creditors.
  • Wise Use of Credit: Avoid maxing out credit lines; it’s generally recommended to keep utilization below 30% of your total available credit.

Consistent and Timely Payments

  • Payment History: Establish a history of on-time payments. Late payments can significantly hurt your credit score.
  • Automate Payments: Consider setting up automated payments for regular expenses to avoid missed or late payments.

Diversify Your Credit Portfolio

  • Variety of Credit: Utilize a mix of credit types, such as a business credit card, a line of credit, and trade credits.
  • Responsible Use: Open new credit accounts when necessary and manage them responsibly to build a positive credit history.

Build Relationships with Suppliers

  • Trade References: Develop strong relationships with suppliers who report to credit bureaus. Consistent, prompt payments to these suppliers can positively impact your score.

Impact of Business Credit Scores on Loan Applications and Interest Rates

Business credit scores play a pivotal role in determining the success of loan applications and the affordability of borrowed funds through interest rates.

  • Credit Score as a Benchmark: Lenders use business credit scores to evaluate the risk associated with lending to a business.
  • Higher Scores, Better Chances: Businesses with higher credit scores are more likely to be approved for loans and may access a wider range of financing options.
  • Influence on Terms: A strong credit score can lead to more favorable loan terms, including lower interest rates.
  • Cost of Borrowing: Businesses with lower credit scores may face higher interest rates, increasing the overall cost of borrowing.

Preparing for Loan Applications

  • Review Credit Reports: Prior to applying for a loan, review your credit reports to understand your business’s credit standing.
  • Rectify Issues: Address any negative items on your credit report and improve your credit practices to boost your score.
  • Documentation and Readiness: Be prepared with financial statements and other necessary documents to demonstrate your business’s financial health and creditworthiness.

By implementing these strategies, understanding the nuances of different credit bureaus, and recognizing the impact of credit scores on financing, businesses can effectively manage their credit profiles, paving the way for financial success and stability.

What Is a Good Credit Score for a Small Business?

business credit score

Business credit reports have a few key differences. Personal credit scores range from 0 to 1000; a business credit profile will typically have a score of 0 to 100.

Business credit scores differ by the value of the number assigned. Typically, these scores range on a scale from 0 to 100, with 0 to 10 a business failure score. The FICO SBSS score will be a number from 0 to 300.

Dun & Bradstreet assigns a Paydex rating from 0-100. When a business pays bills on time or early, the business credit history would be 80 points and higher. If a business pays 60 days or more late, the rating would be from 0-49.

Experian uses business data to establish a business risk factor called Intelliscore Plus, also on a 0 to 100 scale. Business credit grades higher than 76 are considered “low risk” for lending or extending credit. Scores 1 to 10 are considered “high risk” and poor.

The FICO SBSS score is on a scale of 0 to 300. To get the SBA 7 (a) small business loan, you’ll need a score of 140 or higher. Other small business lenders will want a score of at least 160.

In short, when you’re looking at your own or other business’s credit scores, you need to know what the number means. How is the credit score calculated and what does it mean? A successful business will have a credit rating – to matter what the number – that translates to a “good” rating.

 

How to Check Your Business Credit Score

Checking your business’s credit score is crucial in managing your company’s finances effectively. Below, find a step-by-step guide to help you check your credit score with ease:

  1. Identify the Credit Bureaus: Know the primary credit bureaus where you can check your business’s credit score. The prominent ones are Dun & Bradstreet, Equifax, and Experian.
  2. Prepare Necessary Information: Gather all the necessary business information, including your company’s legal name, address, and possibly the D-U-N-S number (for Dun & Bradstreet).
  3. Visit the Credit Bureau Websites: Go to the official websites of Dun & Bradstreet, Experian and Equifax.
  4. Register or Log in: On the websites, you may need to register or log in to access the credit score information.
  5. Free Credit Score Check: Most of these bureaus offer a way to check your business’s credit score for free. Utilize the no-fee option to check your company’s score.
  6. FICO Score: If interested, you can also check your business’s FICO score. It may require signing up on the FICO website or through other platforms that offer FICO score checks.
  7. Checking Another Business’s Credit Score: If you wish to check the credit score of another business, be prepared to pay a nominal fee. This process might also require additional steps and information regarding the business you are inquiring about.
  8. Analysis and Review: Once you obtain the report, analyze the details thoroughly to understand your business’s financial standing.
  9. Seek Assistance if Needed: If you find it challenging to interpret the report, consider seeking assistance from a financial advisor or consultant.
  10. Regular Monitoring: Make it a habit to check your credit score regularly to monitor your business’s financial health and to promptly address any issues or discrepancies.

A Guide to Business Credit Scores

This table makes it easy to understand how to check your business credit score across different platforms. It’s a straightforward tool to help you keep track of your financial health without the hassle.

TaskDun & BradstreetExperianEquifaxFICO Score
Identify the Credit Bureaus????
Prepare Necessary InformationD-U-N-S Number, Company Legal Name, and AddressCompany Legal Name and AddressCompany Legal Name and AddressBusiness Details
Visit the Credit Bureau WebsitesAvailableAvailableAvailableAvailable
Register or Log inRequiredRequiredRequiredRequired
Free Credit Score CheckAvailableAvailableAvailableMay Offer Periodic Promotions
Checking Another Business's Credit ScoreNominal FeeNominal FeeNominal FeeNot Applicable
Analysis and ReviewDetailed Report AvailableDetailed Report AvailableDetailed Report AvailableDetailed Score Analysis
Seek Assistance if NeededFinancial Advisors AvailableConsult with Financial ExpertsFinancial Consultation AvailableConsult with Financial Experts
Regular MonitoringAdvisedAdvisedAdvisedAdvised

How to Build Your Business Credit Score

Person monitoring their business credit report

Building a robust business credit score is an essential step in securing the future of your enterprise. It necessitates not only a meticulous approach to financial management but also an investment in good financial habits. Here’s how you can go about building and nurturing a strong  corporate credit score:

  • Understand the Basics: Familiarize yourself with the elements that constitute a good credit score for your company. Learn how it’s calculated and what factors influence it the most.
  • Timely Payments: Ensure you settle all your bills and outstanding payments on time. Maintaining a consistent payment history can greatly enhance your credit score.
  • Separate Personal and Business Finances: Avoid intertwining personal and business finances. Establish clear boundaries between the two to maintain a healthy credit score.
  • Credit Utilization Ratio: Be mindful of your credit utilization ratio. It is advisable to use a smaller portion of the available credit to maintain a favorable score.

You can also:

  • Diversify Your Credit: If possible, secure different types of credit (like trade credit, business credit cards, etc.) to showcase responsible credit management across various platforms.
  • Personal Credit Maintenance: While focusing on building your business credit, do not neglect your personal credit score. A high personal credit score can sometimes positively influence your business’s credit score, especially if you are running a small business.
  • Monitor Your Credit Report: Regularly review your business credit report to keep tabs on your progress and to quickly identify and rectify any errors that might be present.
  • Seek Professional Advice: If necessary, don’t hesitate to seek advice from financial experts or consultants to guide you in building a stellar company credit score.

In short, build good credit habits in both business and personal finances. Establishing a solid credit foundation opens doors to numerous opportunities, fostering growth and stability. Additionally, it paves the way for securing better loan terms and fostering trustworthy relationships with suppliers and partners.

Here’s a word from Credit Suite about Setup Your Business with the Credit Bureaus. It’s a nice companion piece to this article:

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Lisa Price Lisa Price is a staff writer for Small Business Trends and has been a member of the team for 4 years. She has a B.A. in English with a minor in journalism from Shippensburg State College (Pennsylvania). She is also a freelance writer and previously worked as a newspaper circulation district manager and radio station commercial writer. In 2019, Lisa received the (Pennsylvania) Keystone Award.