A business credit score is the measure of a business’s creditworthiness, which is made up from a number of factors to understand the financial position of a business and its level of financial risk. The score ranges from 0 to 100, with 0 representing a high risk and 100 representing a low risk.
How does a business credit score work?
A business credit score is a crucial insight into a company’s financial health and reliability. Lenders will use a credit score to assess how much of a financial risk a business is, based on a summary of the information in their business credit reports, whenever it submits any kind of credit application.
A high BCS is a good indication that a company will reliably make repayments on time. This will make it more likely that the company’s credit application will be accepted, and they’ll be offered more competitive rates. This score is also accessible by everyone from vendors and suppliers to landlords and business partners.
It’s important that companies don’t neglect their credit score and take the necessary steps to keep it as healthy as possible.
What affects your business credit score?
Just like personal credit scores, there are various factors which determine a business credit score. This score is generated by credit reporting agencies and is calculated using a number of parameters like the company’s payment history.
These details typically consist of public financial data and information supplied by the company, its lenders, and other vendors. Some example variables considered in a business credit score include the company size, its level of credit utilization, any current outstanding debts, and the length of the company’s credit history. (And this still isn’t even the full list of factors.)
You can help improve your BCS by providing accurate and up-to-date financial information. It’s a good idea to routinely check your business credit report in order to identify any errors or inaccuracies. You should notify the relevant credit bureau if you spot anything that needs correcting.
Business Credit Risk Score
The Business Credit Risk Score measures how likely it is for a business to become severely delinquent with future payments. This is a useful indication to lenders, creditors and other business partners in assessing the probability of a business making payments late or missing them entirely. Lenders and creditors also use it to determine the terms of the credit they extend.
Businesses are ranked on a scale between 101 to 992, with a lower score correlating to a higher risk of delinquency. A good Business Credit Risk Score is around 700 or higher.
Benefits of a business credit score
Building a strong business credit score can help small business owners in several different ways. For starters, having a BCS can help you access credit for your business without leaning on your own personal credit. This means you may be able to access capital to grow your business without using your own personal credit cards or a personal loan.
Not only that, but there are distinct advantages that come with keeping your personal and business credit and finances entirely separate. For starters, keeping personal and business transactions separate can be immensely helpful when it comes time to file your taxes each year. Since the U.S. tax system requires that you keep your buiness and personal finances separate if you plan on deducting expenses, this separation can also help ensure your personal assets aren’t leveraged against you if your business has financial issues.
How to Check Your Business Credit Score?
If you wish to obtain a credit score or report from any of the above companies, you will generally need to pay for the information. With some, such as D&B, your first report may be free, as long as you sign up for a D-U-N-S number in the process. We recommend contacting a sales representative at these companies, and seeing if you can qualify for a free report.
Be wary of websites and services to claim to offer you “free reports”. They could be a scam, looking to steal your information. Always check with the sources directly (i.e. one of the credit reporting agencies talked about above).
Why Checking Your Business’ Credit Score Matters
Reporting agencies have been known to make mistakes. Like with personal FICO scores, information may be misattributed, or a simple clerical error on somebody’s part could always happen. You are the only person who is likely to see an error and be able to call it out.
If an error on your credit report goes unchecked, lenders and creditors may deny you a claim as a result. Luckily, you only need to notice an error in 1 spot. If some database is misattributing information, you can report it to D&B and they are obligated to investigate. If it is found that there is indeed an error, all other reporting agencies that rely on the database will be notified and are also obligated to respond.
Benefits of a business credit score
Building a strong BCS can help small business owners in several different ways. For starters, having a biz credit score can help you access credit for your business without leaning on your own personal credit. This means you may be able to access capital to grow your business without using your own personal credit cards or a personal loan.
Not only that, but there are distinct advantages that come with keeping your personal and business credit and finances entirely separate. For starters, keeping personal and business transactions separate can be immensely helpful when it comes time to file your taxes each year. Since the U.S. tax system requires that you keep your business and personal finances separate if you plan on deducting expenses, this separation can also help ensure your personal assets aren’t leveraged against you if your business has financial issues.
Differences between personal and business
There are plenty of differences between your personal credit score and your credit score, including the following:
Business credit scores are on a smaller scale
While personal credit scores typically fall on a scale of 300 to 850, biz credit scores are often offered on a 1 to 100 scale.
Anyone can check
While personal credit scores are private and can only be accessed in specific situations, anyone can check a business credit score to see how a business ranks.
Business credit scores are determined using different factors
Biz credit scores are determined using the following factors: payment history, age of credit history, debt and debt usage, industry risk and company size. Personal credit scores are determined using different factors: payment history, amount of debt, new credit, credit mix and average length of credit history.
Business credit scores use your Employer Identification Number (EIN)
While your personal credit score is tied to your Social Security number, your business credit score is tied to an EIN. This helps you keep your personal financial information private while you build and maintain your business credit score.
How are business credit scores calculated?
Like your personal credit score, the most important factor that makes up your business credit score is your payment history—whether you make sufficient on-time payments on your debts. Business credit scores also consider the age of your company, and you may achieve a higher score the longer you’ve been around. Debt and debt usage are also considered when figuring out business score, as well as the type of industry you’re in and the size of your firm.
Keep in mind that, unlike personal credit scores that can consider multiple factors, some business credit scores only consider one. With the Dun & Bradstreet PAYDEX business credit score, for example, the only factor they consider is your payment history.