What Is a Business Credit Score and How It Works
This article is part of a larger series on Best Small Business Credit Cards.
A business credit score is a number calculated by a credit bureau that reflects the credit health of a business. It uses past credit history to show current credit risk and predict future credit risk. The four most common business credit scores are those from Dun & Bradstreet (D&B), Experian, Equifax, and the FICO® Small Business Scoring System (SBSS).
Whether you’re applying for a small business loan or trying to get a small business credit card, lenders will pull your business credit report from one of the reporting agencies. Credit bureaus will gather information about your company and its financial history, including when you started the business, credit lines, payment histories, and any legal filings against your company. It will analyze your data and generate a unique credit score.
If you want to check your D&B credit score for free, you can open a business checking account with Bank of America. Not only do you get access to excellent business support products and services, but you get access to your credit score for free. Visit Bank of America for more information.
What Is a Good Credit Score?
While all four bureaus have different credit scoring systems, all of them are easy to understand. See the slideshow below for the credit range of each scoring system.
This slideshow includes the score ranges you’ll find on each credit bureau’s business credit report and what range of scores is considered good. Companies with good credit scores are considered low risk for default on potential loans. Knowing your business credit score is one of our 12 requirements for getting a small business loan you need to know.
The credit score ranges in the table below reflect your business’ credit risk. While each scale is different, the higher the score, the less likely your business is to default on loan agreements. The lower the score, the higher the credit risk associated with your business. Companies with lower credit scores will likely have higher loan interest rates or be denied credit altogether.
Credit Bureau | Common Business Credit Scores |
|---|---|
PAYDEX® Score (1 to 100) | |
Intelliscore Plus (1 to 100) | |
Business Credit Risk Score (101 to 992) Business Failure Score (1,000 to 1,610) | |
FICO® SBSS℠ (0 to 300) |
Types of Business Credit Scores
While Dun & Bradstreet has five different indicators that reflect current and future credit risk, the most commonly used rating is the PAYDEX score. This score ranges from 1 to 100, with 100 being a business that is the lowest credit risk.
In addition to the PAYDEX score, D&B has a delinquency score, a failure score, a D&B rating, and a viability ranking. The failure score and viability ranking attempt to forecast the likelihood that a company will go out of business in the near future. The delinquency score predicts whether a business is likely to default on payments within a year, and the D&B rating assesses a company’s financial strength.
All five of these scores can be found on a Dun & Bradstreet business credit report. You can access your Dun & Bradstreet credit score for free by opening a business checking account with Bank of America.
Experian’s credit report produces its Intelliscore, which uses public information and credit information to assess the creditworthiness of a business. Experian will analyze a company’s payment history, public records filing, credit inquiries and usage, and general business information. Once that data is analyzed, a score from 1 to 100 is produced. Anything above 76 is considered a good score, with 100 being the lowest credit risk.
One difference between Experian and Dun & Bradstreet is that Experian considers the business owner’s personal credit in the score. This makes this score very useful, especially for smaller businesses relying on the owner’s credit and income for startup financing. It also means that your personal credit will affect your Intelliscore, so it is critical to keep your personal credit score high as well.
Like Experian, Equifax uses public information, such as payment history, legal filings, and credit utilization, to determine your credit score. Equifax has two scores: a credit risk score and a failure score. The credit risk score runs between 101 and 992 and indicates your company’s creditworthiness. A score of 992 indicates a company that would be a low credit risk.
The other is a business failure score, which runs between 1,000 and 1,610. This score indicates the likelihood your company will go bankrupt or out of business in the next 12 months. A score of 1,610 would be given to a company least likely to go out of business.
By combining information from Dun & Bradstreet, Experian, and Equifax, FICO compiles a credit score known as the FICO® SBSSSM credit score. This score ranges between 0 and 300, with 300 being the least likely to default on loans. Usually, you need a score above 155 to get approved for a business loan.
This score is most often used for Small Business Administration (SBA) loans. Unlike the three providers above, you cannot get this score directly from FICO. For a fee, companies, such as Nav, provide reports on their websites that include this score.
How To Improve Your Business Credit Score
You can improve or build your business credit score similarly to how you would improve or build your personal credit. Here are several ways to improve a bad credit score or to avoid having a bad score.
- Check your credit score often, and report any errors: By keeping a close eye on your report, you’ll be able to catch reporting errors early and get them fixed before you need to apply for new credit
- Pay bills on time: Up to 35% of your credit score is determined by payment history, so be sure to pay bills on time.
- Keep your credit utilization low: Most credit bureaus want you to keep your utilization under 30%. Your score may drop if you use more than 30% of your credit.
- Open credit accounts with providers that report trade lines: Make sure the accounts you open are with providers that report to a credit bureau so that you’re getting credit for making payments.
- Set up automatic payments: By setting up automatic payments, you don’t have to worry about forgetting to make a loan payment on time.
- Make multiple payments: By making multiple payments, you’ll pay off loans faster and decrease your credit utilization, improving your score.
- Get a secured credit card: While you’ll need a security deposit to open a secured card, it gives you access to a credit line, increasing available credit and reducing utilization.
- Ensure negative items drop off the report when resolved: If you have items that are past due or in collections, see to it that those items are removed from your report when they’re resolved.
Frequently Asked Questions (FAQs)
Is my business credit score the same as my credit score?
No, your business credit score will differ from your personal credit score. However, Experian’s Intelliscore does take into account the owner’s personal credit along with the business credit. Meanwhile, the other three credit bureaus—Dun & Bradstreet, FICO, and Equifax—will solely judge the business credit history when assigning a score.
What credit score does a business start with?
Your business won’t have a credit score until it has trade lines reporting with the credit bureau. Once you have begun making payments on your new line of credit, your business will be assigned a score. That score will likely start in the average range and increase as you make on-time payments or open new lines of credit.
How does my business have a credit score?
If you have taken out credit in your business’ name, your business will have a credit score. That score will fall in a range depending on which credit bureau’s report you have. The higher the score, the less credit risk your business carries. Those ranges are:
- Dun & Bradstreet: 1 to 100
- Experian: 1 to 100
- Equifax: 101 to 992
- FICO: 0 to 300
Bottom Line
Before applying for a business loan, knowing and understanding your business credit score is critical. Not only will you know your chances for approval, but you’ll also be able to see what’s affecting your score. This can help you take proactive steps to improve your business credit score. A company with strong business credit scores will get approved for business credit more often and have better repayment terms and interest rates.
