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What Is A Business Credit Score, And How Does It Work?

A business credit score is a number that is given to your business to represent the likelihood of defaults, payment delays, or bankruptcies. It is calculated based on data from vendors you do business with, public records like liens and judgments, and your company's own financial statements. In this article, we'll cover the most important things you need to know about your business credit score so that you can strengthen it for your business.

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What Is A Business Credit Score, And How Does It Work?

A business credit score is a number that is given to your business to represent the likelihood of defaults, payment delays, or bankruptcies. It is calculated based on data from vendors you do business with, public records like liens and judgments, and your company’s own financial statements. In this article, we’ll cover the most important things you need to know about your business credit score so that you can strengthen it for your business.

What is a Business Credit Score?

When it comes to the long-term financial growth of your business, your credit score is everything, because your score represents your business’ ability to pay its bills and access capital. But what is a business credit score, and how does it work?

A business credit score is a numeric representation of your business’s creditworthiness. It’s used by lenders to determine whether or not to give you a loan, and at what interest rate. The higher your score, the more likely you are to be approved for a loan with favorable terms.

There are five different types of business credit scores, but the most common three are:


1. The Dun & Bradstreet PAYDEX Score – Ranging from 0 to 100
2. The Experian Intelliscore – Ranging from 1-100
3. The Equifax Business Credit Score – Ranging from 101 to 992.

Another lesser known, but still very important score is the FICO Small Business Scoring Service. This score ranges from 0 to 300, and it is commonly used to qualify applicants for SBA loans.

Regardless of the scoring model used, all credit scoring companies generally base their scores on factors like payment history, available credit, credit utilization, and age of credit history.

What Credit Factors Affect My Business Credit Score?

There are numerous factors that affect your business credit score. Some of the most common include:

Payment history

This is one of the most important factors in determining your business credit score. Your payment history will show lenders how well you have managed your financial obligations in the past and will be a major factor in their decision to extend credit to you in the future.

Credit utilization

This refers to the amount of outstanding debt you have relative to your available credit. Lenders want to see that you are using a small percentage of your available credit, as this indicates that you are a low-risk borrower. Specifically, you want to restrict your utilization to 30% or less. And of course, it is always best to pay your credit bills in full before the next billing cycle.

Length of credit history

A longer credit history will generally result in a higher business credit score. This is because lenders view businesses with a long history of responsible credit management as being less risky than those with shorter histories. This factor may be outside of your control if your business is less than 2 years old. If this is the case, it is important to responsibly manage the other scoring factors to compensate for the young age of your business.

Types of credit used

The mix of different types of credit accounts, such as revolving, installment, and vendor accounts that appear on your business credit report will also affect your score. A diverse mix of credit types is generally viewed favorably by lenders. For the healthiest scores, you should aim to have a minimum of 15 credit accounts in good standing for your business.

Credit Inquiries

Whenever you apply for new credit, an inquiry is made on your business credit history. Inquiries that result in a declined application will make it harder to be approved on the next application that you submit. Because of this, it is important that you work to understand the qualifying factors for each lender and meet the requirements before you submit the application at all. If you are having trouble locating the requirements for each lender, you can contact the team at MyBusinessCredit.com, and get assistance in becoming pre-qualified for the appropriate lenders.

How to Check Your Business Credit Report

Your business credit report is important because it is one of the factors that lenders will look at when considering a loan. It’s a good idea to check your report regularly to make sure that the information is accurate and up-to-date.

Sometimes, you may find that the credit reporting agencies have automatically created a report for your business, without you having to submit any information at all. It is extremely important that you check these auto-generated reports very carefully, as they will often contain inaccurate or duplicate information.

There are a few different ways to check your business credit report. One option is to order it directly from one of the major credit reporting agencies, such as Experian or Equifax. You can also get a free business credit report from some websites, such as Dun & Bradstreet.

Once you have your report, take some time to review it carefully. Check for any inaccuracies and dispute them if necessary. You should also keep an eye on your credit score, which is another factor that lenders will consider when making a loan decision.

What To Do If I Get A Low Business Credit Score

If you get a low business credit score, it’s important to take steps to improve your score. This can include paying bills on time, maintaining a good credit history, and using a mix of different types of credit. By taking these steps, you can improve your chances of getting loans, lines of credit, and other forms of financing in the future.

If you need help improving your score, you can also work with one of the business credit coaches offered at MyBusinessCredit.com. They will guide you every week for up to a year and they will coach you on the steps that must be taken to improve your score.

Conclusion

A business credit score is an important metric that businesses use to measure their financial health. This score can impact a business’ ability to get loans, lines of credit, and other forms of financing. If you’re thinking about starting or growing a business, it’s important to understand how business credit scores work so that your business has the best chance to succeed.

And as always, if you need assistance with understanding your financing options, feel free to contact the team at MyBusinessCredit.com, and work with a knowledgable professional who is ready to help!

 

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