Like a personal credit score, a business credit score measures your business’s creditworthiness, or in other words, its ability to pay back its loans and debt obligations. There are four major credit reporting agencies that issue business credit scores.
Dun & Bradstreet PAYDEX Score
The PAYDEX score is issued on a scale of 0 to 100. Dun & Bradstreet assigns your business a PAYDEX score based on the promptness of your payments to vendors. Companies that pay their bills on time have a score of 80, which is considered a good score. Only companies that pay their bills 30 days in advance receive a score of 100.
Experian Intelliscore Plus
Experian Intelliscore Plus is also on a scale from 0 to 100. Experian uses the following metrics to evaluate your business: payment history, frequency of derogatory marks (liens, bankruptcies, etc.), company profile (age of business, the number of employees, industry etc.) and credit utilization. A score of 76 or above is considered excellent, meaning your business is low risk to lenders.
Equifax Business Credit Report
Equifax Business Credit Report doesn’t report a single number as your score. Instead, the company issues three different scores: a credit risk score (range 100 to 992), payment index (0 to 100) and business failure score (1,000 to 1,880). The business failure score measures the likelihood of your business going bankrupt or closing in the next 12 months. For all three scores, a higher number is better. Equifax looks at your credit and payment history to determine the scores.
FICO LiquidCredit Small Business Scoring Service (SBSS)
FICO launched the SBSS score in 1993, but it wasn’t used widely until the Small Business Administration began using it in 2014. A FICO SBSS score ranges from 0 to 300. FICO will look at data from the other credit reporting agencies in addition to your personal credit history and business’s financials. Most lenders will want to see a score of at least 140 to 160 (the SBA requires 140 for its 7(a) loan).
Why You Should Know Your Score
Having a good business credit score will help you get approved for financing and receive better rates for business loans. Unfortunately, 45% of small business owners didn’t even know they had a business credit score, and over 80% of small business owners don’t know how to interpret their scores, according to a study by Nav.com.
Lenders will use your business’s credit score to help decide if they want to extend a loan to your business. Lenders may use a score from one agency or from all of them, so you should monitor your score across all four. According to the same study, business owners who know and understand their scores are 41% more likely to be approved for a loan.
How to Check and Improve Your Score
To get a credit score, you may need to register your business with the reporting agency. Dun & Bradstreet will require you to register for a free D-U-N-S (Data Universal Numbering System) number before they issue a PAYDEX score. On the other hand, Equifax and Experian will automatically register and track your business based on public business filings.
Typically, you will need to pay to see your business credit reports. Some reporting agencies may give you one free report or let your track changes to your score (though not the score itself) for free. Prices among the reporting agencies vary: an Equifax Business Credit Report costs $99.95 and an Experian Intelliscore Plus credit report is $39.95. Despite the price, it’s worth checking your business credit scores at least once per year. You can also monitor any changes in your score through the free tracking services offered by the agencies.
If you check your business credit score and find that it’s not up to par, you can take a few steps to improve it:
- Pay your bills on time or early: All four reporting agencies use payment history when calculating your score, so paying your vendors and creditors on time is crucial. The payment amount can also be a factor. This means that paying a $10,000 bill late will have a much greater negative impact on your score than paying a $100 bill late.
- Keep your credit utilization low: Similar to your personal credit score, keeping your credit utilization low will benefit you in the long run. For example, if you have $100,000 line of credit, you should aim to use no more than 30-40 percent.
- Avoid derogatory marks: Bankruptcies, liens, defaults and payments sent to collections will have an adverse effect on your business credit score. It’s best to avoid these situations altogether.
- Maintain a good personal credit score: FICO SBSS includes your personal credit score in its analysis. In addition, many lenders will look at your personal credit score when you apply for a loan. They do this because a small business owner’s ability to manage her own finances will likely translate into her being able to manage her business’s finances. A good to excellent personal credit score is considered anything above 690.
- Report any mistakes on your credit report: There may be mistakes on your business credit reports that can negatively impact your score. It’s up to you to identify and report these mistakes to the credit reporting agency.
If you haven’t checked your business credit score, or even registered for one, you should do that soon for your business. Having a good business credit score could easily be the deciding factor in getting the funding you need to grow your business.
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