Business Credit Scores: What They Are and Why They Matter

Just like individuals, businesses have credit scores. Knowing how to establish, verify, and understand your business's credit score is critical to setting your company up for future success.

Having a high business credit score can lead to more favorable business insurance terms and rates. small business loans, supplier payments, etc. However, a low score may limit your choices in those products, as well as other potential opportunities with banks and vendors.

A business credit score quantifies how risky it is to do business with a company. The score evaluates a business's creditworthiness and ability to handle debt based on factors such as payment history, available credit, and judgments such as tax liens and bankruptcies.

The three major business credit reporting agencies are Dun & Bradstreet, Equifax, and Experian. Each generates multiple scores, providing potential creditors with insight into your business' financial history, health, and likelihood of on-time payments.

For example, the Dun & Bradstreet score includes a Delinquency Prediction Score and a Failure Score. One estimates the likelihood of paying bills on time, and the other predicts whether a company will go out of business or file for bankruptcy within the next 12 months.

Business credit bureaus typically collect payment information from sources such as vendors, banks, and data collection industry associations. Corporate credit card issuer.

Scoring models vary by reporting agency, but each agency typically considers the following factors:

• Payment history to creditors and vendors.

• Company size and age.

• Age of oldest financial account.

• Risk of failure in your industry.

Your personal credit score does not directly reflect your business credit score. Even if your personal credit score is thin or poor, your business credit score may still be strong. The opposite is also true. However, business and consumer credit scores are linked in a different way.

Most notable are some of the easiest ways to get business credit. Open a corporate credit card — Must have excellent personal credit. That's because debts such as credit cards and business loans typically require a personal guarantee or a commitment to repay the amount borrowed if the business is unable to operate. Lenders use business owners' personal credit reports to evaluate their commitments.

There are ways to establish business credit that don't rely on personal credit, such as setting up trading lines. Still, the path to a business credit score is easier if you have a good personal credit score. Even if you focus on the former, the following makes sense: Take steps to improve the latter.

Perhaps the most common business credit score is the Paydex score, which ranges from 1 to 100. The higher the score, the better. This is true for most business credit scores, but there are some differences between credit bureaus.

The breakdown of each is as follows.

Dun & Bradstreet issues several scores to evaluate business factors. The main scores used are the Paydex score, failure score, and delinquency score.

• Paydex score (1-100): A score of 80 or above is considered low risk, a score of 50 to 79 indicates medium risk, and a lower score corresponds to high risk of late payments.

• Failure score (1,001 to 1,875): The lower the score, the higher the risk of bankruptcy or business closure within 12 months.

• Delinquency score (1-5): A lower score is better, as it equates to a lower risk of significant payment delays (more than 91 days) and bankruptcy.

• Payment index (0-100): Reflects past payment history. Higher scores are better, with 90 or above indicating that your bills are paid on time.

• Credit risk score (101-992): Assess the likelihood that your company's payments will become significantly delinquent. The higher the score, the lower the risk.

• Business failure score (1,000-1,880): Measures the likelihood of a business closing within 12 months. The lower the score, the more likely your business will fail.

For credit risk scores and business failure scores, a rating of 0 indicates bankruptcy.what is this Equifax Business Credit Report It seems.

Experian's CreditScore report includes business credit scores and financial stability risk ratings, along with information such as payment habits, account history, and public records.

• Business credit score (1-100): The higher your score, the lower your risk of significant payment delays.

• Financial stability risk rating (1-5): The lower the score, the better, as it represents a lower risk of default or bankruptcy within the next 12 months.

• Better conditions for business loans: A solid business credit score increases your chances of obtaining a small business loan or line of credit with favorable terms.

• Lower business insurance rates: As your company grows, business insurance costs Can be expensive. A high business credit score may help you get a lower interest rate.

• More favorable payment terms with vendors: Trade credit terms (the amount of time you have to pay a vendor or supplier after you receive goods or services) range from 30 to 90 days. Where you fall on that spectrum depends largely on your business credit score.

Here's how to get your business credit score from each major business credit bureau.

• Dun & Bradstreet: D&B offers a free report with limited access to four key scores via its website. You can pay for unlimited access and additional services ($15 to $30 per month).

• Experienced person: You can purchase Experian CreditScore reports online for $39.95 per report or subscribe to Experian's Business Credit Advantage plan ($189 per year) for unlimited access, alerts, monitoring, and additional analysis. .

• Equifax: To get an Equifax business credit score, you'll have to jump through some hoops. Equifax business credit scores are only available to businesses applying for business credit, such as loans or credit cards. To obtain your report, you must contact an Equifax representative and provide proof of your business credit application. However, it's free.