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 Service℠ (SBSS)℠.
Lenders will pull your business credit report from one of the reporting agencies when you begin the process of getting a small business loan or a small business credit card. 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’ll analyze your data and generate a unique credit score.
While all four bureaus have different credit scoring systems, all of them are easy to understand. Knowing and understanding your credit score is a crucial step in the process of getting a small business loan.
What Is A Good Business Credit Score?
The tabs above show the credit score ranges for each credit bureau on our list and what range of scores is considered good. Companies with good credit scores are considered low risk for default on potential loans.
The credit score ranges listed in the table below reflect your business’s 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 interest rates on loans 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) |
Dun & Bradstreet PAYDEX® Credit Score
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 0 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.
Experian Intelliscore
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 a 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 that may rely on the owner’s credit and income for startup financing. It also means that your personal credit will affect your Intelliscore, so it’s critical to keep your personal credit score high as well.
Equifax Business Credit Scores
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.
FICO® SBSSSM Credit Score
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. You usually need a score of 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.
Bottom Line
Before applying for a business loan, it’s critically important to know and understand your business credit score. Not only will you know what your chances are for approval, but you’ll also be able to see what’s affecting your score. This can help you to 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.
