As you probably already know, consumer credit scores are an essential part of personal borrowing. Business credit scores are similar in that they enable businesses to borrow money (e.g., business loans) and build their reputation with lenders.
Your company’s credit report tells creditors how consistently you’ve repaid past debts and how likely you are to make timely payments on future loans. The higher your business’s credit rating, the easier it will be to qualify for new lines of credit or loans to grow your business.
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Why business credit scores are important
A good business credit score comes with several key benefits:
- Increased borrowing power: If you have strong business credit, you may be eligible for larger loans. This is especially beneficial if your business is expanding and needs extra capital.
- Better terms on loans and credit: Similarly, establishing a strong credit history can help you get better terms and interest rates on small-business loans or lines of credit.
- Lower insurance policy rates: As your business grows, the cost of your insurance may rise. A good business credit score will help you keep down your insurance premiums.
- Separation of personal and business finances: Having a business credit score allows you to keep business funds separate from your own money, which makes it easier to keep track of business costs for tax-reporting purposes and protect your personal assets from business-related liability. Even if you only have a side gig, a freelancer credit card can make filing taxes and budgeting expenses much easier.
Having access to credit allows you to get the money you need to grow your business, pay for day-to-day expenses, buy inventory, hire more staff, and reduce the amount of money that’s coming out of your own pocket to cover your business expenses.
How business credit is calculated
There are three major credit bureaus that evaluate companies for creditworthiness:
- Equifax
- Experian
- Dun & Bradstreet
There are several other business credit reporting agencies, but these three are the most widely used.
The credit bureaus have slightly different ways of collecting and processing your data, which can lead to slight discrepancies between your credit scores. However, they all use these criteria:
- Length of time in business (newer businesses typically have lower scores)
- Number of hard inquiries into your company’s borrowing and spending history (hard inquiries cause a small drop in your credit score)
- Number of credit accounts your company has and the type of credit associated with those accounts
- Payment history
- Credit utilization rate (the percentage of your available credit that you’re using)
- Debt-to-income ratio, which measures how much of your revenue goes toward paying off debt every cycle
There are no universal criteria for defining a “good” business credit score. Each bureau has its own proprietary credit scoring algorithm, so learning how each calculates your credit score and how credit works in general is essential for understanding your company’s credit health.
The following is a snapshot of what each agency looks for when calculating a business credit score and what the bureaus classify as a good credit score:
Experian
Experian produces a “business credit report” that features a credit score as well as additional information, such as account histories and public records.
Business credit scores range from 1 to 100 on Experian’s reports. According to Experian, a good score is anything from 76 to 100. 1
How Experian’s business credit scores are calculated
Unlike Dun & Bradstreet’s Paydex Score and Equifax’s Payment Index, Experian’s business credit score considers a broad range of factors other than your business’s payment history.
These factors include: 1
- Suppliers and lenders
- Legal filings
- The company’s history, including public records
- Collection agency records
Experian also considers the following:
- Length of credit history
- Outstanding loan obligations
- Payment patterns
- Any liens or bankruptcies against your business
- The size and age of your company
Equifax
Equifax produces three different credit scores for companies based on their financial records:
- Payment Index
- Credit Risk Score
- Business Failure Score.
Payment Index
Equifax’s Payment Index is a numerical representation (on a scale from 0 to 100) of how many on-time payments a company has made. It’s based on data from vendors and creditors. Unlike the other two scores, the Payment Index isn’t designed to predict future actions.
Credit Risk Score
Equifax’s business Credit Risk Score is a number ranging from 101 to 992 that represents the likelihood that a company will stop making timely payments in the future. It’s based on the following factors: 2
- Company size
- The credit limit on your company’s revolving credit accounts (only your business credit cards, not personal credit cards, will be taken into consideration)
- The age of your company’s oldest financial (credit or lender) account
- Number of overdue non-financial transactions, such as payments to vendors
A healthy Credit Risk Score for Equifax is any score in the range of 637 to 992.
Business Failure Score
Equifax’s Business Failure Score represents the likelihood that your firm will close in a year. It ranges from 1,000 to 1,610, and takes the following factors into consideration: 2
- Age of your oldest financial account
- Credit usage over the past three months
- Number of delinquent accounts and late payments within the last year
- Number of non-credit transactions (such as vendor payments) more than 30 days overdue or charged off for two or more billing cycles
Dun & Bradstreet
Like Equifax, Dun & Bradstreet (D&B) produces three different business credit scores:
- Paydex Score
- Delinquency Predictor Score
- Failure Score
These scores represent a business’s overall risk in different categories.
Paydex Score
A Paydex Score is a number from 1 to 100 that represents your company’s payment history, with 100 being the best possible score. It’s calculated based on payment data from up to 875 suppliers and vendors and through data-gathering firms that collaborate with D&B.
On-time payments to suppliers and vendors improve your business’s Paydex Score, and late payments hurt your score.
D&B divides the Paydex Score into risk categories, with 1 indicating a high risk of late payments, 50 indicating a moderate risk of late payments, and 100 indicating a low risk. A Paydex Score of 80 or higher is considered good. 3
To obtain a Paydex Score, you must first register for a DUNS number.
Delinquency Predictor Score
D&B’s Delinquency Predictor Score (DPS) predicts the likelihood that a business will make a late payment in the next 12 months. Scores range from 101 to 670, with scores of 101 to 452 representing a high risk of delinquency and scores of 580 to 670 signifying a low risk of delinquency.
Failure Score
D&B’s Failure Score (formerly known as the Financial Stress Score) represents the risk that a business will face financial stress, such as bankruptcy, within 12 months. 3
Failure Scores range from 1,001 to 1,875, with scores of 1,570 and higher constituting the lowest risk category. 4
Business credit scores by credit reporting agency
| Credit reporting agency | Name of score | Rating scale | Range of good scores |
|---|---|---|---|
| Experian | Business credit score | 1–100 | 76–100 |
| Equifax | Payment Index | 0–99 | Lower scores are better; 0 is best |
| Credit Risk Score | 101–992 | 637–992 | |
| Business Failure Score | 1,000—1,610 | A higher score is better | |
| Dun & Bradstreet | Paydex Score | 1–100 | 80–100 |
| Delinquency Predictor Score | 101–670 | 580–670 | |
| Failure Score | 1,001–1,875 | 1,570–1,875 |
How to find your business credit score
Several third-party services allow you to access your business credit reports online. This is a quick and easy way to get your business credit scores without having to fill out multiple application forms and pay each bureau separately.
However, if you’d like to access your business’s scores and reports from each respective bureau, here’s how:
- Experian: Visit Experian’s business credit webpage and enter your information.
- Equifax: Go to their Business Credit Reports for Small Business page, click “Contact Us,” and provide your information.
- Dun & Bradstreet: You have three options. To get temporary access (for 14 days) to your business’s D&B score, go to the CreditSignal page and start by searching for your business. For unlimited access, you can also sign up and pay for CreditSignal Plus for $15 per month. Alternatively, for a higher price of $39 per month, CreditMonitor gives you real-time access to your entire D&B business credit file.
You can also simply ask your lenders for their thoughts on your credit score and how it might affect your loan applications.
Remember that there are many differences between business credit scores and personal credit scores, so don’t expect your business score to reflect your personal score.
How to build business credit
There are several things you can do to build your business credit.
- Monitor your business credit score: The first step toward good business credit is to monitor your credit score. Sign up for a business credit monitoring service or review your credit reports from the three major bureaus to identify areas for improvement and track your progress.
- Separate your business and personal finances: If you don’t separately maintain your personal and commercial finances, you may end up with high debt-to-income ratios or a lack of corporate credit. You should get a business credit card and use it responsibly for your company expenses.
- Make on-time payments: Late payments will damage your business’s credit score, so it’s crucial to stay up-to-date with any monthly dues.
- Dispute credit-reporting errors: If any of your creditors or the bureaus have made an error affecting one of your accounts, it’s important to dispute the error as quickly as possible with the responsible party. If they don’t satisfactorily address your dispute, then consider getting help from a business credit repair agency.
- Reduce your debt-to-income ratio: Although income isn’t included on your business credit reports (and therefore doesn’t affect your business credit scores), a high debt-to-income ratio can indirectly affect your company’s credit scores if it causes you to fall behind on bill payments. Pay your bills on time and avoid accumulating more debt than you can pay off using your business’s income.
- Build positive relationships: Finally, one of the most effective ways of building or repairing business credit is to maintain positive relationships with your suppliers by paying your bills on time, communicating issues effectively, and staying up to date with any changes in payment policies or service terms. This could help you get an extension on payment deadlines.
Ultimately, staying on top of your business credit will minimize your stress and help your company maintain a standard of excellence that will facilitate growth. To start, get your business credit reports, check your scores, and work on building good credit moving forward.
