Business Credit Scores Explained
Learn about business credit scores—what they are, how they’re calculated, how to check them and why they’re important
Your business credit scores can influence everything from financing to investor relationships. Understanding how to establish and build your business's credit scores should help boost your company's success over time; poor business credit scores may limit your opportunities. Keep reading to get the rundown on business credit scores.
What Is a Business Credit Score?
A business's credit scores indicate how risky it might be to lend a business money. Like a personal credit score, they're used to predict how likely the business is to miss a payment in the future. A business's credit scores are based on information contained in its credit profile, such as payment histories, debts, public records and more. Usually, the higher a business's credit scores, the healthier the business's finances.
Why Business Credit Scores Are Important
Your business credit scores may be used to determine what financing, contract terms or insurance rates your company is eligible for. Maintaining good business credit can increase your borrowing power and minimize risks to your financial standing. Established business credit can also help separate your personal and business credit. Simply put, earning good business credit scores may help save you money and appear more favorable to those you do business with, like lenders or investors.
How Business Credit Scores Are Calculated
Business credit bureaus use information like a business's size, payment history, credit use and industry type to calculate its credit scores. They also use information from those you've done business with, such as vendors, suppliers and lenders, to estimate the business's risks—such as delinquent payments or potential to go out of business.
Dun & Bradstreet, Equifax® and Experian® are the largest business credit bureaus. Since they each use slightly different business credit scoring models, your results may differ across them.
How Business Credit Scores Are Used
Lenders, insurers, investors, vendors, suppliers and others may use a business's credit scores to gauge how reliable a business may be as a borrower, client or partner. Good business credit scores may help your business obtain:
- Better financing options.
- More negotiating power.
- Lower insurance premiums.
- Favorable contract rates and terms.
- Partnerships with other organizations.
How Business Credit Scores Differ From Personal Credit Scores
Business and personal credit do differ. While a standard 300 to 850 range is used for personal credit, business credit scores are usually measured from 1 to 100 (Equifax uses a 101-to-992 scale). And instead of remaining private, a business's credit information may be accessible to anyone for a fee. Rather than being linked to a Social Security number, business credit information is associated with an employer identification number (EIN) or a bureau-specific identifier like a Dun & Bradstreet D-U-N-S® Number.
How To Check Your Business's Credit Scores
Each business credit bureau may have different types of credit scores for your business. To understand your business's credit standing, it's usually wise to check your scores at Equifax, Experian and Dun & Bradstreet.
Equifax usually offers two business credit scores: the Equifax Business Credit Risk Score and the Equifax Business Failure Score. The former estimates your business’s risk of making delinquent payments, while the latter measures the risk of business failure.
Equifax uses information like company size, account age, credit utilization and payment history in its scoring models. Equifax may also provide a payment index rating, which represents your payment reliability.
Experian offers CreditScore and ProfilePlus reports. Both include your business credit score, but the latter may offer more in-depth credit information. Your Experian business credit score is calculated using information such as outstanding debts, payment trends and business age from supplier and lender accounts, legal records and independent sources.
3. Dun & Bradstreet
Dun & Bradstreet may offer multiple business credit scores. First you'll need to request a free D-U-N-S Number. The bureau's PAYDEX score should reflect your payment history. Dun & Bradstreet may also provide a viability rating, failure score, delinquency predictor score and legal event reports. These Dun & Bradstreet business credit scores can provide insight into your business's past financial responsibility and predict its future financial reliability and stability.
What Is a Good Business Credit Score?
Different bureaus usually have their own scoring models with unique numerical ranges, so there's no universal "good" business credit score. While a higher score is usually better, one model's high score may be low in another model. For instance, the Dun & Bradstreet PAYDEX score ranges from 1 to 100, with 100 being the best, but Equifax's Business Credit Risk Score ranges from 101 to 992, with 101 being the worst.
Understanding each credit scoring model should help you understand whether your business's corresponding scores are good.
What Credit Score Is Needed for a Small-Business Loan?
Similar to credit card companies, small-business lenders may accept a personal credit score that's good or better to qualify you for financing. If your personal credit falls just below that level, lenders may consider your application if you can outline a plan to improve your score.
How Do I Improve My Business Credit Scores?
Making payments on time or early, keeping credit use low, and having multiple accounts that report to business credit bureaus can help improve your business credit scores.
While you may have heard that carrying a small balance from month to month can boost your scores, that isn't the case. It's always best to pay in full. Checking your reports regularly and disputing any errors with the credit bureaus should help keep your scores accurate and healthy.
Looking To Establish Business Credit? Learn How a Spark Business Card Can Help
It's never too soon to take charge of your credit scores. Start building your business credit scores with a Capital One Spark Business card. From cash back to travel rewards, business-grade benefits come with every card.
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