There’s no doubt about it: your business credit score is important. Whether you’re looking to secure a small business loan, take out a lease or obtain insurance, your chances of approval and offered terms are largely dependent on this number. So, it’s in your best interest to know what factors contribute to your business credit score and what actions you can take today to improve it.
In the content that follows, we’ll answer:
- What is a business credit score and why does it matter?
- What does “good” look like?
- How are business credit scores calculated?
- How to find your business credit score?
- And how to improve it?
What Is a Business Credit Score?
A credit score is a measure of your business’s creditworthiness. Lenders use the score to assess your business’s risk profile. Many factors go into your credit score, including your business’s payment history, credit usage and overall financial stability.
The exact calculations used to generate a credit score vary among scoring agencies. But models typically incorporate legal filings, the age of the business as well as the financial profile of the business owner.
Why Your Business Credit Rating Matters
Financial institutions use your business credit rating to predict how likely you are to satisfy debt obligations. Based on their assessment, lenders will approve or deny a request for credit, and they will determine what rates and terms you qualify for. Not only is a credit score levied by lenders, but insurers also evaluate it too when determining policy rates.
In summation, the better your credit score, the higher your borrowing potential and the more favorable terms you’ll receive.
What Is a Good Business Credit Score?
There are four major business credit reporting agencies: Dun & Bradstreet®, Equifax®, Experian® and FICO® SBSS (Small Business Scoring Service).
Each of these has a business credit rating scale with its own standard for what “good” looks like. With the exceptions of Experian and FICO, these agencies also offer supplemental business credit scoring models, as outlined below.
Dun & Bradstreet Paydex® Business Credit Score
Dun & Bradstreet maintains credit data files on businesses of all sizes. Dun & Bradstreet’s primary business credit scoring system is called Paydex.
According to Dun & Bradstreet, the Paydex score closely relates to a personal FICO score. The Paydex score takes into account a business’s record of payments to creditors over the past year. The range is between 0 and 100. A Paydex rating of 80 or more is considered “good.”
Dun & Bradstreet Delinquency Predictor® Score
This scoring scale ranges from 101 to 670. It’s based on an algorithm that predicts the odds that your business will fall seriously behind on creditor payments or seek legal protection (i.e., file bankruptcy) from creditors within the next year.
The higher your Delinquency Predictor Score, the better. A 500 is considered “good.” With this score, you also get a risk assessment ranking (Delinquency Predictor Risk Class) between 1 and 5. For this, you want as close to 1 as possible.
You also get a percentile ranking (Delinquency Predictor Percentile) between 1 and 100. In this case, the higher the percentile, the better.
Dun & Bradstreet Financial Stress Score®
The Dun & Bradstreet Financial Stress Score (FSS) is based on statistics gleaned from your business’s industry. It also factors in your business’s financial history, including a record of making payments to creditors.
This is a predictive score, meaning poorer numbers indicate a likelihood of your business filing for bankruptcy in the upcoming 12 months. The FSS score is based on a scale of 1001 to 1875, with 1288 putting your business in a low-risk category.
Equifax Payment Index
The primary Equifax business score is called the Payment Index. It measures a business’s history of payments over the last 12 months. To achieve a “good” rating on the Payment Index business credit rating scale, your business needs a 90 or above on a scale from 0 to 100.
Business Delinquency Score™
Equifax also provides a separate Business Delinquency Score to enable creditors to evaluate the likelihood that a business will default on its payments. The Business Delinquency Score runs on a scale from 101 to 992. To be considered a “good” credit risk, your small business would need a score of 700 or more.
Equifax Business Failure Score™
A third business credit rating that Equifax offers is the ominous-sounding Business Failure Score. This score is a predictive algorithm of whether your business is likely to go under within the next 12 months without paying its creditors. Ranging from 1000 to 1880, the further your score is from 1000, the better. A 1315 score is considered in the safe zone.
The Experian Business Credit Score™
Experian operates only one business credit ranking scale, which it calls the Credit Ranking Intelliscore Plus . Intelliscore Plus is a blended score that factors in both the business’s information and the business owner’s information.
No self-reported data is factored in. On a scale of 0 to 100, a score of 76 or more is considered “good.”
The FICO Small Business Scoring Service
FICO aggregates data from the other three credit reporting agencies. Their business scoring model runs on a scale from 0 to 300. The FICO SBSS score is commonly used by the Small Business Administration when determining whether or not to approve an SBA loan.
The SBA requires a minimum FICO SBSS score of 160, which is considered “good.”
How Are Business Credit Scores Calculated?
As you can see from the list of scoring criteria above, many considerations are taken into account with a commercial credit score. The exact method that each agency uses to calculate their scores is a closely-guarded secret.
All that a business owner can do is to take care that the financial and administrative aspects of their business are in order.
The data used to calculate business credit scores is collected from a range of sources that include:
- Business registration documents
- Articles of incorporation
- Credit applications
- Business tax filings
- Personal tax filings
- Legal filings
- Industry statistics
- Creditor reports
- Business owner reports
- Public records
How to Get Your Business Score
Your business credit score isn’t a secret. It’s publicly available to anyone who cares to take a look at it, including your vendors. For a nominal charge, anyone can get a copy of your business credit report and scores.
Unlike personal credit reports, business owners aren’t entitled to one free copy per year. You’ll have to pay to see your commercial credit score and report.
Get a Copy of Your Dun & Bradstreet Business Credit Report
Dun & Bradstreet offers business owners a notification service called Credit Signal® that alerts you if your score has changed. They sometimes advertise a limited time offer where you can access your business credit score for free. These offers aren’t permanent, and it’s probably not wise to rely on a temporary free service to monitor your business credit score.
Get a Copy of Your Equifax Business Credit Report
You can purchase a copy of your Equifax business credit score on their website. You’ll be able to see everything they report to potential creditors about your business, including your credit risk score, your business failure score, your payments history and more.
Get a Copy of Your Experian Business Credit Report
Experian offers copies of your business credit report to you (and anyone else who wants to see it) through their website.
Get a Copy of Your FICO Business Credit Report
FICO offers three different subscription-based plans to view your FICO score, plus receive credit monitoring services. You also receive score alerts that tell you if something has changed with your score.
By obtaining a copy of these reports, you’ll have access to the information your creditors see when they pull your business credit report.
Ways to Improve Your Small Business Credit Score
If you pull your business credit report and you see room for improvement, you can take specific steps to make it better.
As with personal credit scores, changes can take 30 days or longer to propagate to all the reporting agencies. Just be patient and continue making positive steps like the ones noted here:
- Monitor your business credit report routinely. Since it’s publicly available, there’s an increased risk for fraud.
- Pay creditors on time (or early) if possible. Business credit agencies reportedly give better scores if vendors report early payments.
- Alert creditors if payment is going to be late and let them know when to expect it. You may be able to avoid a “late payment” report to credit agencies if you’re upfront about your situation.
- Keep your credit utilization percentage to 30% or below. The ratio of credit available to credit used is a big factor in your business credit score.
- Choose creditors wisely. Borrow only from reputable companies, preferably from those that report payments to the major credit agencies.
- Open a business credit card. This will help younger businesses establish credit faster.
Now that you understand everything you need to know about business credit scores, it’s time to take action. Your business credit score is a valuable asset that you can leverage to grow your business through a working capital loan, survive tough times with a line of credit or acquire needed inventory on time.
By consistently taking care of the financial affairs of your business, your business credit rating will always work for you.