At a Glance
Monitoring your business credit score is essential for ensuring your company’s financial health and credibility. There are several ways to access your score, like leveraging reputable credit bureaus, which offer comprehensive reports and user-friendly dashboards to help you track and manage your business credit. Or, you can use one of several online platforms and financial service providers that furnish transparent access to your credit rating. You should regularly check your score to identify existing credit issues, develop strategic plans for improvement, and stay ahead of potential lending challenges.
In this article, you’ll learn:
- What is a business credit score?
- Business credit score vs personal credit score
- How do credit scores for businesses work?
- How to check your business credit score?
- How is the credit score for a business calculated?
- Why should you check your business credit score?
- How can you improve your business credit score?
Is the number of low-risk applicants that applied for small business funding and received all the money they requested. They were followed by 39% medium-risk applicants, and 23% of high-risk borrowers who also received all of the money they requested, according to a recent survey.
What is a business credit score?
A business credit score is a numerical rating that represents the creditworthiness of a business. This score is similar to an individual’s personal credit score, but it is specifically based on the financial history of a business.
Credit bureaus, like Dun & Bradstreet, Experian, and Equifax, typically calculate business credit scores using data from credit reports, public records, and other sources. The scores usually range from 0 to 100, with higher scores indicating better creditworthiness and lower risk.
Lenders, suppliers, and other creditors may use a business credit score to evaluate the creditworthiness of a business before extending credit or offering financing. A strong business credit score can help businesses secure favorable loan terms, access more credit, and attract new business partners.
Business credit score vs personal credit score
A business credit score and a personal credit score are two different metrics used to evaluate the creditworthiness of either a business or a person.
A personal credit score is a numerical rating representing an individual’s creditworthiness. It is based on the individual’s personal credit history, including their payment history, credit utilization, length of credit history, types of credit used, and other factors. Personal credit scores are typically calculated by credit bureaus, like Equifax, Experian, and TransUnion, using data from credit reports.
On the other hand, a business credit score is a numerical rating representing a business’s creditworthiness. It is based on the business’s credit history, including its payment history, credit utilization, length of credit history, and other factors that indicate how likely it is to pay its debts on time. Business credit scores are typically calculated by credit bureaus, like Dun & Bradstreet, Experian, and Equifax, using data from credit reports, public records, and other sources.
The main difference between a personal credit score and a business credit score is that a personal credit score is based on an individual’s personal credit history, while a business credit score is based on a business’s credit history.
How do credit scores for businesses work?
As businesses grow and expand, they often find themselves needing more financial resources than they can provide on their own. This is where credit comes in – by borrowing money, businesses can gain the funding they need to take their operations to the next level. However, lenders need a way to assess the risk of lending money to a particular business. This is where business credit scores come in.
These scores are like a report card for a business’s financial health and creditworthiness. Just like personal credit scores, they take into account factors like payment history, credit utilization, and length of credit history. Understanding how these scores work is essential for any entrepreneur looking to secure financing for their business.
How to check your business credit score?
To check your business credit score, you can follow these steps:
- Identify the credit reporting agency: There are several credit reporting agencies that provide business credit reports, including Dun & Bradstreet, Experian, and Equifax. Check which one(s) you want to request a report from.
- Gather required information: Each credit reporting agency will require different information to identify your business and pull your credit report. Generally, you will need to provide your business name, address, and tax identification number (TIN) or employer identification number (EIN).
- Request a credit report: Once you have identified the credit reporting agency and gathered the required information, you can request your business credit report. Some credit reporting agencies offer free credit reports, while others may charge a fee.
- Review your credit report: Once you receive your credit report, review it carefully to ensure that all the information is accurate and up-to-date. If you find any errors or discrepancies, you can dispute them with the credit reporting agency to have them corrected.
How is the credit score for a business calculated?
Business credit scores are typically calculated by credit reporting agencies like Dun & Bradstreet, Experian, and Equifax, using a variety of factors. While each credit reporting agency may use slightly different methods to calculate credit scores, they generally consider the following factors:
- Payment history: A business’s payment history is one of the most important factors in determining its credit score. Late payments or missed payments can negatively impact a business’s credit score.
- Credit utilization: This refers to the amount of credit a business has used compared to the total credit available to it. High credit utilization can indicate that a business is overextended and may have difficulty repaying its debts, which can negatively impact its credit score.
- Length of credit history: The length of time a business has been using credit is another factor in determining its credit score. A longer credit history generally indicates more stability and reliability.
- Type of credit: The types of credit a business uses can also impact its credit score. For example, having a mix of different types of credit, like credit cards, loans, and lines of credit, can indicate a business is managing its credit responsibly.
- Public records: Negative public records, like bankruptcies or judgments, can also impact a business’s credit score.
Credit reporting agencies use complex algorithms to calculate business credit scores based on these factors and other data. The exact formula for calculating a business credit score may vary between credit reporting agencies, and each agency may weigh certain factors differently.
Why should you check your business credit score?
Checking your business credit score is important for several reasons:
- Identifying errors and inaccuracies: Credit reports can sometimes contain errors or inaccuracies that can negatively impact your credit score. By regularly checking your business credit score, you can identify any errors or inaccuracies and take steps to correct them.
- Understanding your creditworthiness: Your business credit score is an indicator of your creditworthiness and can be used by lenders, suppliers, and partners to assess the risk of doing business with you. By checking your credit score, you can better understand how others may view your business’s creditworthiness and take steps to improve it if necessary.
- Securing favorable loan terms: Your business credit score can impact the terms and interest rates of loans, lines of credit, and other financing options. Maintaining a good credit score can increase your chances of securing more favorable loan terms and saving money on interest.
- Attracting new business partners: Potential business partners, suppliers, and customers may also use your business credit score to evaluate your business’s reliability and financial stability. Maintaining a good credit score can attract new business partners and build trust with existing ones.
- Improving your business’s financial health: Checking your business credit score regularly and taking steps to improve it can help you better manage your business’s finances and improve its overall financial health. This can lead to better decision-making, increased profitability, and long-term success.
How can you improve your business credit score?
Here are some steps you can take to improve your business credit score:
- Pay bills on time: One of the most important factors in determining your business credit score is your payment history. Late payments or missed payments can have a significant negative impact on your credit score. Make sure to pay all bills on time to maintain a good credit score.
- Keep credit utilization low: Credit utilization, or the amount of credit you use compared to the amount available, can also impact your credit score. Keeping your credit utilization low, ideally below 30%, can help improve your credit score.
- Monitor your credit report: Regularly monitoring your credit report can help you identify errors or inaccuracies that may be negatively impacting your credit score. Dispute any errors or inaccuracies with the credit reporting agency to have them corrected.
- Maintain positive relationships with creditors: Building and maintaining positive relationships with your creditors can also help improve your credit score. Communicate with them regularly, make payments on time, and notify them in advance if you are having difficulty making payments.
- Diversify your credit: Having a diverse mix of credit, like loans, credit cards, and lines of credit, can also help improve your credit score. This shows that you can manage different types of credit responsibly.
No, all business credit scores are not the same. Several credit reporting agencies provide business credit scores, and each agency uses its own methodology to calculate credit scores.
Each agency may use different factors and weigh those factors differently to calculate credit scores, which can result in different scores for the same business. Additionally, some credit reporting agencies may collect more information on certain types of businesses, like small businesses or startups, which can impact the credit score.
It’s important to check your business credit score from multiple reporting agencies to get a complete picture of your creditworthiness. You should also review your credit report regularly to ensure that it is accurate and up-to-date. If you find any errors or inaccuracies, you should dispute them with the credit reporting agency to have them corrected.
Yes, a business credit score is often used by lenders to evaluate the creditworthiness of a business when considering a loan application. A business’s credit score can impact the terms and interest rates of loans, lines of credit, and other financing options.
There is no single “acceptable” business credit score, as different lenders and credit reporting agencies may have different criteria for evaluating creditworthiness. However, in general, a good business credit score is one that is considered low risk by lenders and credit reporting agencies.
Some credit reporting agencies, like Dun & Bradstreet and Experian, use a credit score range of 0 to 100 to evaluate business creditworthiness. A score of 80 or above is generally considered good, while a score below 50 may be considered high risk.
Other factors that lenders may consider in addition to a business’s credit score include the business’s financial statements, cash flow, and collateral. A business with a good credit score and strong financials is generally more likely to be approved for a loan and receive more favorable loan terms than a business with a poor credit score and weaker financials.
The length of time it takes a business to get a credit score depends on a business’s credit history, financials, credit activity, and the credit reporting agency. If a business has a history of making payments on time and using credit responsibly, it may be able to establish a credit score more quickly than a business that has not yet established credit or has a history of late payments or defaults.
First, a business will need to open accounts with vendors and suppliers who report payment activity to credit reporting agencies. The business can also apply for and use credit cards and other lines of credit that report to credit reporting agencies. Once a business has established credit and has been making payments on time, it may take a few months or up to a year for a credit score to be generated by a credit reporting agency. The exact timeline can vary depending on the credit reporting agency and the business’s amount of credit activity.