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Business credit scores: What they are and how they work

Keeping a healthy business credit score can help your business get access to credit in the best possible terms. Here’s everything you should know

Summary

Business credit scores are not the same as personal credit scores, but they can measure your business’s creditworthiness. Read on to learn the components of business scores, how to access them and how to keep yours in good shape

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Good credit can be essential to the success of your business in the short and long terms.

But business credit scores and personal credit scores aren’t the same thing and it’s important to know the difference. If you’re just starting out with building credit for your business or you’re hoping to improve your business’s credit rating, this guide includes everything you need to know about business credit scores.

See related: Best business credit cards

What is a business credit score?

A business credit score is a number that signifies how creditworthy your business is, says David Bakke, business expert at DollarSanity. “In short, a business credit score utilizes information from your business credit report, which includes your payment history.”

At first glance, that sounds a lot like personal credit scores, but they aren’t exactly alike.

“Business credit and personal credit are both measures of creditworthiness, but business credit is based on a business’s financial history, whereas personal credit is based on an individual’s spending and debt history,” says Jeffrey Bumbales, director of marketing and strategic partnerships at Credibly.

There are different scoring models you can use to measure your business’s credit health, including:

  • Dun & Bradstreet PAYDEX Score
  • Equifax Small Business Credit Risk Score
  • Experian Intelliscore Plus Score
  • FICO SBSS Score

Unlike personal credit scores, which typically range from 300 to 850, business credit scores can follow a different range.

For example, PAYDEX and Experian business credit scores go from 0 to 100. Equifax scores range from 101 to 992, while the FICO SBSS score goes from 0 to 300. Regardless of the range, a higher score correlates to a lower risk in lenders’ eyes.

What factors make up business credit scores?

Bumbales says that while both business and personal credit scores factor in payment history, credit age and credit utilization, business credit scores also consider other things, such as business size and industry risk.

And every scoring model is different, in terms of the information it collects and how that information is used.

For example, PAYDEX scores focus primarily on payment history for accounts you’ve opened with suppliers and vendors. In addition to on-time payment history, the PAYDEX scoring model considers overdue accounts and accounts that have gone to collection.

Experian business credit scores, on the other hand, focus on three different categories of information:

  • Credit information from suppliers and lenders.
  • Legal filings from local, county and state courts.
  • Company background information, including public records, credit card debts and collections.

Experian then uses those details to calculate your business credit score based on how much you owe, your payment habits, credit utilization, the size of your business, operating history and whether you have any liens, judgments or bankruptcies on file.

Similarly, Equifax and FICO SBSS scores take into account a range of different factors to generate your business credit scores.

Why credit scores for business are important

Maintaining a good business credit score matters for a few reasons.

“A business credit score is important to maintain as it makes things easier for you to be able to finance your business, get lower rates on insurance and keep personal and business finances separate,” says Jacob Dayan, CEO and founder of Community Tax.

For instance, good business credit can help if you need to establish trade lines with vendors and you’re aiming for the most favorable payment terms possible. Ideally, you want to be able to qualify for terms that align with how cash flows in and out of your business.

A good business credit rating also matters if you need to seek out other financing options. Small business loans, business credit cards and lines of credit can all provide the working capital you need to keep your business going. A solid business credit score can increase your odds of being approved and of getting the best interest rates.

“Agencies can look into different aspects of your business such as vendors, credit card issuers, risk through your PAYDEX score, commercial and financial stress score, which helps predict the likelihood of your business being successful,” says Dayan.

Bumbales says it’s possible to get business loans or other types of small business financing with bad credit. But your options may be limited to alternative financing avenues that carry higher interest rates and fees or secured loans, which require some type of collateral.

How to check business credit

There are several options for checking business credit, some of which are free, and others that involve a fee.

If you want to take the free route to review your credit history, you can start by signing up for CreditSignal, a service offered by Dun & Bradstreet. This service allows you to monitor your Dun & Bradstreet credit report and credit score for changes monthly at no cost. It’s similar to the free credit monitoring services you can use to track your personal credit.

Dun & Bradstreet also offers paid products to review business credit, including CreditBuilder Plus and CreditBuilder Premium. These monthly subscription services are designed to help you improve your business credit over time. Both Equifax and Experian also offer business credit reports for a fee.

Creditsafe and Credit.net allow you to search business credit history for free. One thing to keep in mind about free business credit searches is that anyone can check your business’s credit history. So, any information that’s available can also be seen by your customers, vendors or anyone else who pulls your business credit.

When checking business credit, it’s helpful to see what’s being reported by your lenders and vendors. Specifically, you want to see what account history you’re getting credit for. And remember to make sure your information is accurate, says Bakke, since incorrectly reported account history could drag your score down.

Ways to improve business credit

Improving business credit isn’t so different from improving your personal credit. The key is focusing on the things you can control.

“Business owners can establish a good credit score by making sure they pay their bills on time,” says Dayan. He also suggests checking your business credit reports to understand what factors may be negatively affecting your score and trying to lower your utilization ratio on business credit cards.

When you’re just starting to build business credit from scratch, a business credit card can be an easy way to get going. Not to mention, you could use your card to earn miles, points or cash back for your business. Remember, however, that your ability to get approved and your card APR may hinge on the strength of your personal credit if you have no business credit history.

You could consider using a business charge card that requires you to pay in full each month if you’re concerned about managing credit utilization. That, of course, means you have to be careful in managing your business budget to ensure you’re only charging what you can afford to pay in full each month.

If you have a bad business credit score, address the things that are having the most negative impact first, says Bumbales.

For example, if you have a history of late or missed payments, bring any past due accounts current first. Then work on establishing a payment system so you don’t have any missed due dates going forward.

The more proactive you are in managing business credit, the better your results are likely to be when working to improve it.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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