A business credit score is an indicator of your overall business financial health. It lets lenders and suppliers know you can pay your debts, and is a useful tool for cementing a reliable reputation. But it is your credit policy that protects your business cash. Why is a business credit score important?
If you don’t maintain a strong business score it’ll affect the chances of you getting credit and could even put some organizations off from doing business with you. Read on to discover exactly why it’s so important, how it works, and how to do a business credit score check.
A business credit score is primarily a measure of your ability to repay your business debts. It is a reflection of the success of your business credit policy. Lenders and financial institutions report your payments to credit agencies that rank you on a scale of 0 to 100. In addition, your score is a good indicator of your trustworthiness, how long you’ve been operating, and your legitimacy. The goal is to have as high a score as possible.
In the US there are three main business credit reporting agencies:
Whenever you make payments to lenders or suppliers these records will be reported to one or all of these agencies which will build up your score over time. Each will use slightly different criteria and assign a different weighting to each category to determine your score.
All will make use of public records at both county and state levels, such as business registration and filed accounts. We’re seeing increasing use of internet mining too where credit reports are compiled after trawling the web for any company information, which can include business owner and background checks.
Finally, there’s the FICO Small Business Scoring Service. It’s one of the oldest data analytics companies in the country and it determines your score by combining data from all three credit agencies into one: Dun & Bradstreet, Equifax, and Experian.
|Dun & Bradstreet||Experian||Equifax||FICO|
|Score||PAYDEX||Intelliscore Plus||Equifax Business Credit Report||FICO SBSS Score|
|Range||0-100||0 – 100||Three different scores:|
0 – 100
100 – 992
1000 – 1880
|0 – 300|
|Major Determining Factors||On-time payments to creditors|
Paying your creditors well before the deadline
Negative marks to your record such as tax liens
How often you use credit
|The size and age of your company|
How long you’ve had credit
Your credit limits
|The size of your business including the number of employees|
Revenue levels and value of assets
Your personal credit history
Data from other credit agencies
Credit reports are generated from a few different companies including Dun and Bradstreet (using PAYDEX score), Equifax (uses Business Credit Report), Experian (using Intelliscore Plus score), and the Fair Issac Corporation (uses FICO SBSS score). They all calculate a business credit score by combining data and business intelligence.
Dun & Bradstreet has been providing credit reporting, data analytics, and business insights since all the way back in 1841. Given its illustrious history, Dun and Bradstreet credit reports carry a lot of weight with lenders and it now holds more than 200 million business records. The Dun & Bradstreet business credit score uses a PAYDEX score which is a sliding scale between 0 – 100. It’s a dollar-weighted indicator that reflects your past business performance and is made up almost entirely of trade references it receives from companies and financial institutions.
Dun and Bradstreet will consider all debts, bills, and overdue and on-time payments when calculating the score. Each rating can be made up of references from up to 875 individual trade references and you’ll get a bonus to your score for prompt or early payments. Scores close to 100 in your final report represent excellent credit, while scores close to zero denote very bad credit and a high lending risk.
Equifax is another giant of the industry and has been providing credit reporting information since 1899. It currently holds more than 800 million personal records and 88 million business records that it uses to determine scores. Its reports are actually composed of three different ratings that sit on a total range between 0 – 1,880.
The Equifax business credit score is made up as follows:
Experian is the new kid on the block in terms of credit companies having only been around since 1996. Still, in that time it has accumulated more than 25 million records on US businesses. The Experian business credit score uses the Experian Intelliscore Plus score in its reports, which is a sliding scale between 0 – 100. Much like the others on the list, the higher the score the better your credit rating is.
However, Experian doesn’t reward early payments and only considers whether or not you hit the deadline. In addition, it looks at how often you’ve used credit in the past, whether you frequently push your credit limits, as well as track any delinquencies and bankruptcies. It’s definitely one of the more detailed reports, although it has the smallest pool of records to select from.
Originally founded in 1956 as the Fair Issac Corporation, the company is now one of the most important credit reporting agencies in the US that uses data analytics important in risk management. The service is used by each of the top 10 Fortune 500 companies. A FICO small business credit score ranges between 0 – 300 and pulls together a large amount of data from across all of the other agencies on our list, making it one of the most comprehensive reporting bureaus in the US. As with other agencies, the higher your score, the better your credit.
As well as drawing on data such as payment history, tax liens, credit applications, and credit utilization, FICO also has vast amounts of personal credit score information too. Lenders get to decide how much weight is given to both the personal and business scores which can be useful for fledgling organizations that don’t have a long history.
Just like your personal credit score, it’s absolutely vital that you keep on top of your credit process and the resulting business credit rating. It’s a critical factor when being considered for lending and a bad business score could mean the difference between business expansion or failure.
Make sure to keep up to date with different scores across the four main agencies and always raise a challenge if you find any discrepancies or something you’re not happy with. Think of your credit score as a general sign of health for your business. Look after it and it will look after you.