Your business credit score can make or break your ability to secure financing. Here’s how to do a business credit check and bolster your score. We’ll walk you through:
- What a business credit report is
- How to check business credit using premium and free resources
- What a business credit report contains
- How to improve your business credit score
What Is a Business Credit Score?
Similar to a personal credit score, a business credit score is a number that measures your company’s creditworthiness. It lets lenders know how much of a credit risk you represent, telling them things such as:
- How long you’ve been in business
- What your company earns
- How much you owe
- How well you repay what you owe
- Whether you have any bankruptcies, liens or lawsuits against your business
This information helps lenders evaluate how much you can afford to borrow and how likely you are to pay it back, aiding them in deciding whether you’re a good credit risk.
While your business credit score works similar to your personal credit score, the two are distinct. Where your personal credit score is keyed to your Social Security Number (SSN), your business credit score is keyed to your company’s employer identification number (EIN), also known as a taxpayer identification number, which uniquely identifies your business for tax purposes.
Business credit scores also use a different scoring range than personal credit scores. For instance, the most popular type of personal credit scoring system, the Fair Isaac Corp.’s FICO score, has a base range from 300 to 850. In contrast, FICO’s Small Business Credit Score System (SBSS), uses a scale of 0 to 300, and one of the most popular business credit-rating systems, Dun & Bradstreet’s PAYDEX, uses a scale of 0 to 100.
When to Run a Business Credit Score Check
Several occasions call for checking your own company’s business credit score:
- When you’re considering approaching a lender and you want to check your odds of meeting their qualifications
- When you’re trying to attract investors
- When you’re negotiating with a potential supplier
- When you’re preparing to sell your business
It’s prudent to anticipate these types of occasions by proactively checking your credit score and taking steps to improve it.
Additionally, some occasions may call for checking other companies’ business credit scores:
- If you’re extending credit to a business-to-business (B2B) customer and evaluating their creditworthiness
- If you’re considering an acquisition of another company
How to Run a Credit Check on a Business
To run a credit check on your business or another company, there are two major types of resources you can use:
- Major credit reporting bureaus, which charge a fee
- Secondhand business credit reporting resources, which compile information from the major credit reporting bureaus and offer it free, as a benefit with part of a package or for a fee
Business Credit Reporting Bureaus
The three main credit reporting services are:
- Dun & Bradstreet’s PAYDEX
- Experian Intelliscore Plus
- Equifax Business Payment Index
Dun & Bradstreet’s PAYDEX service is one of the most popular credit scoring systems. PAYDEX measures a company’s past payment performance on a scale of 0 to 100. The score indicates how often a company pays its suppliers and vendors on time. A higher number indicates a higher likelihood of paying bills on time. A recent increase in your PAYDEX score indicates you are more likely to repay debts in a timely manner. A recent decrease indicates a higher risk of failure to pay.
Dun & Bradstreet bases PAYDEX scores on records of payment experiences submitted by vendors and suppliers. These can include records of on-time and early payments as well as records of overdue payments and collections actions. PAYDEX scores may draw data from transactions with as many as 875 of a company’s individual business partners.
The PAYDEX scale is dollar-weighted, meaning the score gives weight to vendor and supplier payments in proportion to the value of the transactions involved. For instance, your payments to a major supplier with whom you do a large volume of business will have a greater impact on your score than small payments to a contractor you use infrequently.
Dun & Bradstreet indexes PAYDEX scores using an identifying system known as D-U-N-S Numbers. You can create a D-U-N-S Number for free through Dun & Bradstreet’s Company Update service, which will help establish your PAYDEX score if you don’t have one. You can see your PAYDEX score by purchasing a business credit report from Dun & Bradstreet. For instance, the company’s CreditBuilder Plus service provides you with unlimited access to your credit score along with related information for $149 a month.
Credit-rating firm Experian, which also tracks personal credit scores, offers a business scoring service called Intelliscore Plus, which uses a scale of 1 to 100 to assess the risk of a company becoming delinquent on its payments in the next 12 months.
To determine credit risk, Intelliscore Plus users can choose from a couple of options:
- Data based on a company’s commercial information, including payment trends, public record filings, collections and business background
- Blended data combining company information with personal information from the business owner, providing a more complete risk assessment
To analyze this data, Intelliscore Plus uses more than 800 variables.
You can purchase Intelliscore Plus data in a number of formats:
- A summary report on a single company for $39.95
- A detailed profile on a single company for $49.95
- A subscription to ongoing updates and score improvement recommendations for a single company for $179 a year
- Subscription to data on up to 30 reports a month for $199 a month or $1,495 annually
Credit bureau Equifax — which, as with Experian, also tracks personal credit — uses several business scoring systems:
- A payment index, a dollar-weighted evaluation on a scale of 0 to 100 of a company’s payment performance that is similar to Dun & Bradstreet’s PAYDEX score
- A business credit risk score, which predicts the likelihood of a business becoming delinquent on payments during the next 12 months on a scale from 101 to 992, similar to the Intelliscore Plus score
- A business failure score, which evaluates the likelihood of a business facing bankruptcy in the next 12 months on a scale from 1,000 to 1,880
You can order a single Business Credit Report for $99.95 or a pack of 5 for $399.95.
Secondhand Business Credit Reporting Resources
You can obtain business credit reporting data from secondhand sources. Some provide the data for free, or free as a benefit with a premium package. Others may charge a fee.
FICO’s SBSS score pools data from business credit bureaus such as Dun & Bradstreet, Experian and Equifax as well as data associated with your personal credit score. The SBSS system uses a scale from 0 to 300 to evaluate small business creditworthiness. Lenders often use SBSS scores when considering SBA loan applicants.
Lenders can set up customized SBSS reports to weigh different variables more heavily than others. For instance, one lender may prefer to place more emphasis on Experian data than PAYDEX data.
When you apply for your loan, your lender may request a customized FICO SBSS report. Your SBSS score will then be included with the loan documents your lender provides you, which is one way to obtain your score. You can also obtain your SBSS score from third-party sources.
Other Free Business Credit Check Resources
A number of providers offer second-hand access to some of your business credit data as a free service as a benefit for a premium service or on a free trial basis. With some providers, you get actual scores and reports. With others, you don’t get direct access to your scores and reports, but you receive summary overviews and alerts to updates.
Some providers of business credit data include:
- CreditSignal, a Dun & Bradstreet service which provides free updates to reports
- Creditsafe, which provides free access to your score and report
- Credit.net, which offers free access to your report on a trial basis
What’s in a Business Credit Report?
Different business credit reports include varying specifics, but in general, you can expect to find certain categories of information:
- Basic details about your business, such as:
- Company name
- Contact information
- Names of any parents or subsidiaries
- Names of key personnel
- Type of company
- Year your company was founded
- Years in business
- Number of employees
- Annual revenue
- Financial information about your interactions with banks, creditors and suppliers, such as:
- How long you’ve held accounts
- Payment history and terms
- Past due accounts
- Legal information about actions such as:
Factors Affecting Business Credit Scores
A number of variables can affect your business credit score, but a few items can carry particular weight:
- Your history of paying bills and debts on time, which is the biggest single factor determining your score
- How long you’ve been in business
- The ratio between your account balances and credit limits (credit utilization)
- The number of different types of debt you’ve managed, such as loans and lines of credit (credit mix)
How to Improve Your Business Credit Score
To improve your business credit score, you can take a number of proactive steps:
- Scheduling automatic bill payments to ensure that you pay debts on time
- Lowering your credit utilization ratio by keeping your spending at 25% or less of your credit limit
- Diversifying your credit mix by using a business credit card or taking out a business loan and making your payments on time
- Reviewing your business credit report for errors and contacting credit bureaus to remove any inaccurate or outdated items
- Improving your personal credit score using the same methods listed above for improving business credit
- Contact Dun & Bradstreet to make sure they’ve assigned you a D-U-N-S Number to index your business in their tracking system
Manage Your Business Credit Score to Help Your Company’s Financing
By checking your business credit score and taking steps to improve it, you increase your company’s odds of securing a loan, line of credit or another form of business financing.
If you’re looking for financing for your business, or if you’re trying to diversify your credit mix to improve your business credit score, be sure to check out Fast Capital 360’s line of business financing options.