A business credit score is a number provided by a credit bureau that represents the creditworthiness of a business. It is calculated based on a variety of factors that influence the score—including financial history, business characteristics, and legal implications. It’s a valuable tool that can be used to determine the level of risk a business poses when obtaining financing or working with various business partners.
Key Takeaways:
- Business credit scores are used by creditors, business partners, or suppliers to ensure a business is credible and financially responsible.
- Credit bureaus have scoring systems with various categories that calculate and evaluate a business credit score.
- A business’s creditworthiness is based on factors such as payment history, credit utilization, legal implications, and the size and age of a business.
How a Business Credit Score Works
A business credit score is a financial tool that serves as a way for creditors, business partners, and vendors to determine whether or not a business is financially sound, has a track record of timely payments, and has a solid reputation. It is commonly considered when making lending decisions and is often one of the small business loan requirements.
Depending on the credit bureau issuing the credit score, there are numerous factors that are taken into account as part of the credit score calculation attached to your business credit report. Most credit reporting agencies collect data that represents your company details, financial information, and credit history.
Generally, that includes the location, size, and age of your business, along with payment trends, previous debt, trade references, and legal filings. While these criteria may vary per reporting company, these factors will have weight in determining your overall creditworthiness and reflect in your business credit score.
Why a Business Credit Score Is Important
A business credit score is applicable to all businesses that have taken out credit. Essentially, it provides a snapshot of your business’s financial strength. It can be valuable when trying to secure financing and be a good tool to help build your business credit.
If your business is looking to obtain financing or partake in other various business transactions, it’s likely your business credit score will play an important role in determining your eligibility. Maintaining a strong business credit score can help your chances when getting a small business loan, negotiating for favorable rates and terms, and securing business partnerships.
It can be used by:
- Creditors who may issue financing and want to ensure a business is considered to be low financial risk if they were to lend funds
- Other businesses or business partners looking to ensure your business is reputable before developing a partnership or initiating transactions
- Customers researching the credibility of your business before they make a purchase
- Vendors and suppliers wanting to ensure you make good on your payments and trades
You can purchase a credit report to review another company’s business credit score. This can be useful if you are considering working with another business and want to better determine its credibility before fostering a relationship or making further transactions.
Types of Business Credit Scores
There are various credit bureaus you can use to check your business credit score. They share common scoring criteria and report features; however, they are unique in the way they represent data. Here are the most common scores issued and utilized by lenders, customers, and business partners.
A Dun & Bradstreet (D&B) credit report issues a score based on collected data of a company’s financial standing. Inclusive of details regarding a company’s information, payment history, trade references, and more, it’s a commonly used report utilized by lenders, business partners, or suppliers to determine the credit risk of a business.
D&B reports can be generated by a third party or be requested by a business itself. There are five key indicators associated with a D&B credit score:
- PAYDEX® score
- delinquency score
- failure score
- D&B rating
- viability rating
An Experian business credit score differs from other credit bureaus, as it’s inclusive of the business owner’s personal credit in addition to the various business criteria used when determining a business credit score. A credit report from Experian considers payment and account history, along with public records.
As with most credit bureaus, an Equifax business credit score is determined by a variety of factors that evaluate the creditworthiness of a business. Specific to Equifax, there are three general categories in which a score is assessed: payment index, credit risk score, and business failure score.
FICO issues business credit scores based on various details regarding both the business and the business owner by using collective data from other credit bureaus. A FICO credit score can be obtained when applying for financing but generally is unavailable publicly.
What Makes a Good Business Credit Score
When assigned a credit score, it’s important to understand the valuation and what makes a good business credit score. Such scores will vary depending on the credit bureau and credit report type, but generally, it’s a rule of thumb that the higher the credit score, the lower the risk a business poses.
There’s a range in each scoring system that’s considered high risk, medium risk, and low risk.
Review the various scoring systems used to generate a report.
Pros & Cons of Business Credit Scores
| PROS | CONS |
|---|---|
| Can help a business monitor or improve its creditworthiness | Can have various requirements specific to the credit bureau issuing the report |
| Can be useful when working with lenders or suppliers and used as leverage for better terms | Can be costly to obtain a report depending on the type and provider |
| Can help with a company’s reputability, as scores are provided by a trusted source | Can require you to maintain your business profile depending on the platform |
How to Get a Business Credit Score
A business credit score can be obtained by a variety of credit bureaus. Depending on the credit bureau you choose, you can get a business credit report that reflects the various categories that make up a credit score determination. Some reports offer free features, whereas others require a fee to obtain a detailed report.
Here’s how you can get a report and check your score from each credit bureau:
- Dun & Bradstreet offers a free basic credit report in which you can check your business credit score, along with various other report types that you can purchase for a more comprehensive outlook. Visit Dun & Bradstreet to get your report.
- Experian provides a business credit report through a one-time fee starting at $39.95 or an annual subscription starting at $189 per year. You can determine your score and explore other features depending on the product you choose. For your score, head over to Experian.
- Equifax reports are typically only available to businesses applying for business credit, whether it be via a loan application or a small business credit card. However, you can request a free report through a representative during the application process. Check out Equifax for more information.
- FICO® SBSSSM business credit scores can only be obtained typically when applying for financing or through lenders offering credit reporting services. However, you can purchase access to your personal credit report directly from FICO. To get your score, visit FICO® SBSSSM.
How to Improve Your Business Credit Score
To improve your business credit score, here are some tips you can implement to increase your chances.
- Check your credit report regularly: Keeping tabs on your credit report allows you to manage your information and ensure your business details are correct.
- Report any errors: In managing your credit report, any errors you find should be reported and fixed before you apply for credit.
- Pay bills on time: Paying your bills on time can strengthen your payment history, which is a common factor when calculating a credit score.
- Keep credit utilization low: Based on the credit balance across your accounts, your credit utilization should remain under 30% to maintain a healthy credit score.
- Open credit accounts with trade references: Ensure the accounts you open are with providers that report to a credit bureau so that you’re getting credit for making payments.
Check out our article on how to fix a bad credit score if your current business credit score is less than ideal.
Frequently Asked Questions (FAQs)
A business credit score is issued by a credit bureau and used to measure the creditworthiness and financial stability of a business. It is indicative of how much risk is associated with a business and is calculated based on varying criteria—such as payment history, debt obligations, company size, time in business, legal encounters, and overall credit history.
There are a variety of credit bureaus that can provide you with a business credit score. These include Dun & Bradstreet, Experian, Equifax, and FICO. You can determine your business credit score through any of these credit reporting companies by requesting a credit report. There are various reports available depending on the provider; however, some may come at a cost if you’re looking for a comprehensive report.
No. While lenders will often take both your business and personal credit into consideration when making a lending decision, they are two separate scores independent of each other’s financials and credit history.
Bottom Line
Now that you know how business credit scores work, you can use them to your advantage if you’re seeking financing or looking to build your business credit. By keeping tabs on your business credit score, you can negotiate favorable rates and terms when seeking financing, maintain the reputability of your business, and secure relationships with various business partners.
