A Complete Guide...
What is a business credit score?
Your personal credit score and a business credit score are two very different things
Find out why a business credit score is important and how it works
How does a business credit score work?
A business credit score is a crucial insight into a company’s financial health and reliability. Lenders will use a credit score to assess how much of a financial risk a business is, based on a summary of the information in their business credit reports, whenever it submits any kind of credit application.
A high business credit score is a good indication that a company will reliably make repayments on time. This will make it more likely that the company’s credit application will be accepted, and they’ll be offered more competitive rates. This score is also accessible by everyone from vendors and suppliers to landlords and business partners.
It’s important that companies don’t neglect their credit score and take the necessary steps to keep it as healthy as possible.
What affects your business credit score?
Just like personal credit scores, there are various factors which determine a business credit score. This score is generated by credit reporting agencies and is calculated using a number of parameters like the company’s payment history.
These details typically consist of public financial data and information supplied by the company, its lenders, and other vendors. Some example variables considered in a business credit score include the company size, its level of credit utilization, any current outstanding debts, and the length of the company’s credit history. (And this still isn’t even the full list of factors.)
You can help improve your business credit score by providing accurate and up-to-date financial information. It’s a good idea to routinely check your business credit report in order to identify any errors or inaccuracies. You should notify the relevant credit bureau if you spot anything that needs correcting.
Where to check your business credit score
There are four main business credit scores and reporting agencies. Dun & Bradstreet Credit Score for Businesses is most commonly employed in a credit check. There are also the Experian Business Payment and the Equifax Business Credit Scores. These are typically used by banks and lenders when assessing credit applications.
Finally, there is the FICO LiquidCredit Small Business Scoring Service. Unlike the above examples, FICO is not a credit bureau. It instead uses information from Dun & Bradstreet, Equifax, and Experian to generate a credit score. That score is then commonly used when making approval decisions on Small Business Administration loans.
These four credit reporting agencies can all hold different information on the same company and, as a result, there can be variation in these business credit scores. They also use different credit ranking scales, meaning what is considered a good score by one reporting agency may not be by another.
What is a Dun & Bradstreet credit score for business?
Dun & Bradstreet (D&B) collects a variety of different financial, public filings, and industry information to generate three separate business credit scores. These include a PAYDEX Credit Score, a Financial Stress Credit Score, and a Commercial Credit Score.
Each one of these business credit scores measures a different potential risk factor associated with a company. This can include its payment performance, the likelihood of it ceasing operations within the next 12 months, and the probability of it paying bills in a delinquent manner.
PAYDEX credit score
The PAYDEX Credit Score uses data gathered from a company’s suppliers and vendors to determine how good the business’ payment performance has been over the last 12 months.
This is scored on a scale of 1 to 100. Vendors, suppliers, lenders, and creditors use it when determining trade credit terms, such as the length of time the company has to pay the net amount of invoices — net 30, net 60, and so on.
The PAYDEX Credit Score rating scale is as follows;
- Good Score: 100–80; Payments come up to 30 days early or on terms
- Fair Score: 79–50; Payments come between 15 to 30 days beyond terms
- Bad Score: 49–1; Payments come between 60 to over 120 days beyond terms
Financial Stress credit score
The Financial Stress Credit Score indicates the likelihood that a company will cease operations within the next 12 months. This is useful to suppliers, lenders, and other business partners in assessing the risk that a business may fail in the short-term.
Dun & Bradstreet calculates this credit score using information from different sources. That data can include comparative financial ratios, public filings, past payment experiences, and other demographic data.
The Commercial Credit Score measures the likelihood of a business acting in a severely delinquent manner in regards to bills. Delinquency is defined as paying bills 91 days or more past the terms. The score also predicts the chance of a company obtaining legal relief from its creditors or failing within the next 12 months without paying off any outstanding debts.
D&B uses public filings, financial information, and demographic data to derive its statistical models that determine this score.
What is an Experian business credit score?
The Experian business credit score calculates the risk of a business making payments in a delinquent manner or defaulting on them altogether. It is measured on a scale of 1 to 100, with a higher score representing a lower risk level. Banks and other lenders typically use this score.
Experian uses over 800 variables to determine this score. It collects data on both the business and its owner through legal filings, credit obligations with suppliers and lenders, and general business background information from independent sources. Those sources can include credit card companies and marketing databases.
Unlike some other credit reporting agencies, no self-reported business information is required to determine the Experian credit score. Instead, the credit bureau gathers all the relevant information itself to determine the business’ risk level based on its credit, public records and demographic data.
The Experian business credit score rating scale is as follows;
- 100–76: Low risk of delinquent or defaulted payment
- 75–51: Low to medium risk of delinquent or defaulted payments
- 50–26: Medium risk of delinquent or defaulted payments
- 25–11: Medium to high risk of delinquent or defaulted payments
- 10–1: High risk of delinquent or defaulted payments
An Experian business score of 76 or higher is generally considered to be good.
What is an Equifax business credit score?
Just like the Experian business credit score, banks and other lenders typically use the Equifax business credit score when assessing whether or not a business qualifies for borrowing.
It also has some similarities with the D&B Business Credit Score. Equifax offers three distinct scores which measure different risk factors: the Business Payment Index, the Business Credit Risk Score, and the Business Failure Score.
Equifax uses a variety of factors and sources when calculating these scores. This can include financial information like a business’ credit utilization and payment history. It may also use financial information alongside public data on the business and its industry.
Business Payment Index
This Equifax credit score measures a company’s payment history. The score is based on the promptness of payments made to its creditors within the past 12 months.
The Business Payment Index assigns a business a numerical value between 1 to 100. Companies that consistently meet payment terms will receive a higher score, while those that frequently make overdue payments will be given a lower one.
A single late payment can result in a drop in a company’s score.
A score of 90 or higher is generally considered to be good, indicating that a company pays its bills early or on time. A score of between 89 and 80 shows that at least one bill within the last 12 months has been made between 1 and 30 days beyond terms.
Business Credit Risk Score
The Business Credit Risk Score measures how likely it is for a business to become severely delinquent with future payments. This is a useful indication to lenders, creditors and other business partners in assessing the probability of a business making payments late or missing them entirely. Lenders and creditors also use it to determine the terms of the credit they extend.
Businesses are ranked on a scale between 101 to 992, with a lower score correlating to a higher risk of delinquency. A good Business Credit Risk Score is around 700 or higher.
Business Failure Score
As the name suggests, the Business Failure Score measures how likely a company is to cease operations within the next 12 months. Equifax uses multiple sources to determine this score, including the business’ legal records, payment and credit information, and demographic data.
The score is measured on a scale between 1,000 to 1,880, with a lower score indicating a higher risk of insolvency. A good Business Failure Score is typically around 1,315 or above.
What is a FICO SBBS credit score?
Unlike Dun & Bradstreet, Experian or Equifax, FICCO technically isn’t a credit bureau. Instead, the FICO credit score comes from information that the three major credit bureaus have already gathered.
The FICO score is also known as the LiquidCredit Small Business Scoring Service (SBSS). Banks and lenders typically use it when making decisions on the approval of Small Business Administration (SBA) loans and other similar credit applications for amounts up to $1 million.
The FICO score comes from data on the business’ and owner’s personal credit history alongside other information such as the revenue, assets and age of the company. FICO will assign a score of between 0 to 300. The higher the score, the lower the financial risk the business poses. Many lenders set a minimum FICO SBBS credit score of 160 to pass the SBA’s pre-screen process.