A credit score measures the creditworthiness of a person or business. Lenders, credit card companies, insurance firms, and utility and service providers may look at credit scores when considering applications or setting terms of a loan.
In the simplest terms, a credit score measures how likely you are to pay back a loan on time. Equations for a credit score include different variables that measure financial management. Therefore, people and businesses with higher credit scores have a history of managing their payments well and present a lower risk of default to lenders.
In addition to loans for major expansions, businesses may need credit to ensure proper cash flow for day-to-day operations and to meet costs such as payroll. For example, a healthcare company may seek a line of credit to purchase medical supplies, or a medical staffing agency can get a loan to cover costs as they expand their operation.
Your business credit score can also affect insurance premiums and your ability to make deals with vendors or service providers. These entities may also look at a business credit score as a way to measure the risk of doing business with you.
What Is a Business Credit Score?
A business credit score measures the creditworthiness of your company. There are three numbers businesses need to consider: the Dun & Bradstreet PAYDEX Score, Experian CreditScore, and Experian Intelliscore Plus.
Although there are three different versions of a business credit score, each has the same goal: they provide a numeric representation of your company’s creditworthiness.
A business credit score includes some of the same variables as a personal credit score, such as repayment performance, bankruptcies, and types of credit. Credit bureaus also consider your company’s credit history in comparison to other firms in your industry. This is important because the use of credit can vary from industry to industry.
Business vs. Personal Credit Score
A business credit score and a personal credit score both assign a numerical rating to your creditworthiness. However, the formulas, standardization, level of privacy, and overall access differ.
- Access and privacy — While anyone can check businesses’ credit scores, personal credit score access is restricted only to companies with a “permissible purpose” under federal law. In other words, you need to be an established lender or service provider deciding about a pending application for credit to obtain a FICO credit score.
- Standardization — While credit bureaus create reports for both individuals and businesses, they use different equations for each. The bureaus use FICO credit scores or, sometimes, Vantage credit scores for individuals. However, each has its own set of equations for coming up with business credit ratings. Therefore, business scores are not standardized.
- Score ranges — A FICO credit score ranges from 300 to 800. Business credit scores, on the other hand, range from zero to 100. For both, the higher the score, the better your credit score is.
- Transferability — A personal credit score stays with you throughout your life. A business credit score, on the other hand, remains with the business. If you keep your business and personal finances separate, a business credit score will not affect your personal credit history.
- Factors — Business credit scores weigh unique factors, such as your ability to cover payroll taxes or fund salaries without additional loans at the end of a pay period.
Why Do I Need a Business Credit Score?
For a smaller business, a good credit score is essential. If your firm has an impressive credit history, you can obtain loans without relying on your personal finances. In addition to keeping your personal and entrepreneurial finances separate, you can also access outside capital more easily with a good business credit score. This can facilitate faster growth.
A good credit score can also help you obtain business-specific financing. For example, you can apply for a revolving line of credit, which allows you to borrow money when you need to pay staff or cover invoices. You can also potentially use your business to secure loans, which can lower your interest rate.
How Is a Business Credit Score Calculated?
A business credit score covers payment history and debt. However, each of the three bureaus has a slightly different approach to arriving at the final figure between zero and 100. A score above 75 puts you in the low-risk category for lenders.
The three numbers businesses need to be aware of are the Dun & Bradstreet Paydex Score, Experian CreditScore, and Experian Intelliscore Plus.
- The Dun & Bradstreet Paydex Score focuses mainly on payment data. In addition to loan and credit payments, it also looks at payment history to vendors. You can increase your Paydex score, which is between zero and 100, by making payments on or ahead of schedule. If you have a good relationship with a particular vendor, you may consider asking them to report the positive payment history to Dun and Bradstreet.
- Equifax offers three different business-related reports: the payment index, the credit risk score, and the business failure score. The payment index focuses on the company’s payment history.
The business credit score risk then looks at the likelihood of your business becoming severely delinquent on payments and factors that may predict this delinquency. The business failure score measures the likelihood of your firm closing within 12 months.
- The Experian CreditScore measures payment trends, account histories, information from lenders and suppliers, and public records. It can also look at legal proceedings against the business, its age, and current credit levels. The resulting score is between zero and 100. When someone looks at your business credit report, they can also see information about the factors that went into the score.
How Do I Find My Business’s Credit Score?
Business credit scores are available directly from the issuing credit bureaus or other online sources.
If you utilize scores from Dun and Bradstreet, Equifax, or Experian, you typically receive a comprehensive report of all the information that a lender or supplier would see when evaluating a business credit score.
It is a good idea to check your score every six to 12 months to see where it stands. You can also pull a full report if you plan to apply for a loan or other form of credit.
Federal law requires bureaus to provide consumers with one free report per year. However, no such regulation exists for businesses. Bureaus or third-party sources can provide free versions of the report. These will include your score without the supporting data.
What If I Find A Mistake On My Business Credit Report
If you discover an error on your business credit report, it is important to take action to rectify it. To do this, you should directly contact the relevant business credit rating agencies. Keeping a close watch on the publicly available financial information about your business, including its business credit scores and FICO scores, is highly recommended. These scores are subject to change regularly, so it’s a good habit for business owners to check them at least a few times a year or once per quarter.
Even if your business credit score is high, it is still crucial to monitor any changes as it can significantly impact your business’s creditworthiness. When you identify and report an error, it’s important to understand that it may take several weeks or even months for the reporting agencies to fully remove those errors from your record. Patience and persistence are key during this process.
By actively monitoring your business credit report and promptly addressing any inaccuracies you may find, you can help maintain the integrity of your business’s credit profile and ensure it accurately represents your creditworthiness.
Can I Check My Business Credit Score For Free?
To check your small business credit scores for free, there are several options available. Although personal credit scores can be obtained for free by law, the same regulation does not apply to business credit scores. However, there are some reputable sources where you can access your small business credit scores at no cost.
One option is to contact each of the major credit rating agencies directly. These agencies, such as Experian, Equifax, and TransUnion, provide business credit reports and scores. By reaching out to them, you can inquire about obtaining a copy of your business credit report for free.
Another recommended approach is to contact Dun & Bradstreet (D&B), which is a prominent business credit bureau. D&B specializes in providing credit reports and scores for businesses. You can reach out to them directly to request a free copy of your D&B report.
While searching online, be cautious of potential scams that claim to offer free business credit reports. Some websites may request personal information or charge unsuspecting users for their services. It is essential to only share your information with reputable websites or companies to ensure your data is secure.
How To Establish and Build Business Credit
A good business credit score can help you obtain loans. A lender will also use the credit report to offer terms for the loan, so a good credit score can also help you get a lower interest rate. Vendors, contractors, and investors may also look at your score, so it can affect your overall reputation as a well-run business.
Overall, it is easy to get a business credit score. You simply have to register your business and obtain an employer identification number (EIN) from the IRS. You will use this identifier to open accounts, sign up for services and utilities, and obtain funding or loans.
All this activity should get reported to the three credit bureaus. You may want to check with suppliers or vendors to ensure that they report to the credit bureaus, as some smaller companies may not do so.
As long as you manage your finances and pay invoices, salaries, and loans promptly and keep debts at a controllable level, your business credit score should remain at an acceptable level.
