Business Credit Scores and How They Work

business credit scores

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The world of finance is a vast, sometimes confusing space. This is especially true for those in the initial stages of their business looking into concepts like business credit to help them grow and scale. 

What is business credit? Which factors matter most in your score? More importantly, how do you get started? 

If you’re interested in learning more about business credit scores, let’s walk through the comprehensive guide below to discover all you need to know to navigate business credit successfully. 

What Is a Business Credit Score?

As the name suggests, a business credit score is a score that tells someone about the financial health of a company as well as whether or not they’re delinquent borrowers or a business that always pays on time or in advance. 

Of course, the name of this credit score is pretty self-explanatory. But what are business credit scores used for? 

Much like a personal credit score, a business credit score is used by lenders, vendors, and similar parties to determine your creditworthiness. A higher score will make it easier for you to secure the funding that you need to scale your business. 

With more knowledge of how these scores function, how to build them, and what to watch out for, it will become much easier to navigate your credit so that you can use it to your advantage. 

What Are the Main Business Credit Scores?

Most are familiar with the three major credit bureaus that are crucial to personal credit: Experian, Equifax, and TransUnion. 

But what are the main business credit bureaus that you should be aware of when monitoring business credit? 

You’re going to actually deal with many of the same bureaus when you’re checking your business credit scores. While Experian and Equifax are known in the personal credit space, they also have a big presence in the business credit space as well. 

Experian Business and Equifax Business don’t align with each other’s scoring systems in the same way that they do when it comes to personal credit. They have their own unique scoring systems that offer different insights into the financial health of businesses. 

Dun & Bradstreet is the leader in the business credit space. Dun & Bradstreet offers DUNS numbers (more on that in a bit), credit monitoring, portfolio management, and more to help small businesses thrive. 

Of course, it’s also important to know which scores to look into for each bureau. 

Here’s a breakdown of the major business credit scores and their functions: 

  • The Dun & Bradstreet PAYDEX Score: The Dun & Bradstreet PAYDEX score features a score range of 0 to 100, with scores of 80 to 100 considered good. The PAYDEX score is designed to help vendors and suppliers assess your risk as a borrower, with on-time payments being the factor your entire score is based on. If you’re late (15 to 30 days) or end up severely behind on payments (more than 30 days), it will considerably reduce your score. 
  • The Experian Intelliscore℠ Plus Score: Experian’s Intelliscore Plus Score has a proprietary scoring model, influenced by data from public records, your personal credit file, and public filings. Factors that impact this score include payment history, SIC codes, time operating, business size, liens, and so on. This score also ranges from 0 to 100. A good score is considered to be anywhere from 76 to 100. 
  • The Equifax Business Failure Score: The Equifax Business Failure Score is a score that deviates from the above scores by providing insight into the likelihood of a business incurring a severe delinquency (90 days) or charge-off over the period of the next 12 months. This score ranges from 101 to 992. 
  • The Equifax Business Credit Risk Score: The Equifax Business Credit Risk Score is a score that evaluates the likelihood a business will fail due to a formal or informal bankruptcy within a period of the next 12 months. This score ranges from 1000 to 1610. 
  • The Equifax Business Delinquency Financial Score: The Equifax Business Delinquency Financial Score is another score designed to provide both business owners and lenders an idea of how at risk of delinquency a business is. The score ranges from 101 to 650, with scores falling between 585 and 650 considered to be the best (lowest risk). 

What Are the Main Factors That Affect Business Credit Scores?

There are several factors that bureaus are going to take into consideration when they’re calculating your business credit score. While scores may vary, here are the most important factors that will determine where you fall on any scale. 

  • Payment History: Your payment history is always going to be at the top of the most important things to focus on when you wish to build credit. If you have a history of making late payments or not at all, your score will plummet. If you have a stellar track record of on-time payments, your score will rise.
  • Age of Business: Not all business ideas work out, but those who manage to beat the odds demonstrate that they’re financially responsible and able to navigate challenges. The longer your business operates (with good credit), the better your score will be. 
  • Public Records: Do you have public collections or liens on your credit report? If so, this is going to bring your score down. Business credit scores are designed to help lenders assess risk, and these types of issues can bring up major red flags. 
  • Lines of Credit: Have you opened up any new accounts recently? Credit inquiries and new lines of credit can both have an impact on your score. However, these types of factors may not be as significant as some of the others listed above, unless you’re applying for a host of credit types one after the other. 
  • Credit Usage: The impact credit utilization will have on your score is going to vary depending on the score type. Lower credit utilization is ideal for building your score. 

There are a couple of other things worth noting that will impact whether or not you could get approved. This includes the following advice. 

  • Lenders aren’t just looking at your history, but the present as well. What do your finances look like? If you don’t appear to be able to manage the different types of business credit you’re applying for, you may be rejected. 
  • Make sure you’re using the right NAICS code. Lenders are going to be assessing industry risk when they take a closer look at your business. If you’re using the wrong code, it can ultimately determine whether or not they approve your application. You shouldn’t lie about the industry you’re in, but you should make sure you’re listing the correct information based on your operations. 

How Do You Check Your Business Credit Score?

All you have to do to check your business credit score is to go to one of the main credit bureaus listed above, navigate their website, and pay the fee. 

Yes, business credit scores often need to be paid for in order to be viewed. However, there are some exceptions. 

Take, for example, checking your score with Dun & Bradstreet. They offer a basic version of CreditSignal®, which allows you to view four scores and ratings for 14 days. After that, however, you will need to upgrade. This would be necessary moving forward regardless. 

You can always shop around to see where you’re going to get the lowest rates. Consider what you’re looking to learn from these bureaus and how that will help you move forward. 

Differences Between a Personal Credit Score and a Business Credit Score

Thinking that personal credit functions the same as business credit can make it harder to navigate the latter. There are some key differences between the two, some that are nice to know and others that will ultimately impact your business journey. 

Here are some of the major differences between personal credit scores and business credit scores. 

  • Score Ranges: Regardless of which bureau you check, you know your personal credit score is going to fall somewhere between 300 and 850. Business credit score ranges will vary based on the score type and the bureau you’re checking with. 
  • Scoring Factors: FICO credit scores are calculated based on factors like age of credit, new credit lines, payment history, and credit utilization. Meanwhile, business credit scores are calculated by different factors, such as those listed above. 
  • SSN vs. EIN: When you apply for a new personal line of credit, it’s going to be tied to your SSN. Business credit instead mostly uses your EIN so that your business credit doesn’t affect your personal credit score. 
  • Accessibility: Personal credit is much more private, and others will only need to access it when they’re applying for a loan or an apartment. Meanwhile, business credit is accessible to anyone who’s looking to learn more about your business and its financial health and repayment habits. 
  • Use: Personal credit is designed to help you secure funding opportunities needed in day-to-day life, and your goal is to have the highest possible credit score to access lower interest rates and other perks. Meanwhile, the goal of business credit is to secure the most funding possible, with things like credit utilization not being as crucial of a focus. 

What Is on a Business Credit Report?

Your business credit report offers lenders a comprehensive overview of your business. Some of the items that you’ll typically find in your business credit report include: 

  • Information about your company, like the number of employees or annual sales
  • Payment history
  • Public filings
  • Number of accounts (and details surrounding them)
  • Government activity
  • Operational data 
  • Historical business data
  • Industry classification
  • Business registration

Checking your business credit report regularly is instrumental in making sure that all of your information is correct. A small mistake can make a big difference in your funding opportunities. 

How to Build Business Credit:

Establish Your EIN

The EIN process is simple and is done through the IRS website. 

As explained above, your EIN will help you secure business lines of credit (unlike using your SSN for personal credit lines). The sooner you take care of this, the better. 

Keep in mind that you can also learn how to start business credit with EIN information instead of having to use your personal credit to get approved. This can prevent your personal credit from being negatively impacted by your business credit. 

Get a DUNS Number

Having a DUNS number is vital for a growing business. 

Offered through Dun & Bradstreet, a DUNS number is a nine-digit identifier that allows other businesses to learn more about your business seamlessly. It may be required on various applications and can easily be searched through Dun & Bradstreet. 

Better yet, it’s completely free to apply for!

Get a Credit Builder Loan

A business credit builder loan allows you to save money while also building your credit. 

Basically, a financial institution will approve your loan. But instead of giving you your money upfront, they’ll have you pay towards the agreed-upon amount and put that away in a savings account. 

You do this all while they report your payments to the bureaus, thus building your payment history.

Once you reach the end of the loan term, you get your money back and you have a better business credit score. 

Get Net 30 Accounts

Net 30 accounts are accounts where vendors allow you to pay back credit within 30 days. While there are other types of these accounts that can extend the payment period, net 30 accounts will help you build a positive payment history that shows up on your reports faster. 

Monitor Your Business Credit Reports

Monitoring your business credit reports will allow you to stay on top of your business credit in case any discrepancies need to be disputed. 

You can often find credit cards that offer free services for credit monitoring or you can go directly to the bureaus and pay to monitor your credit reports.

Always Pay on Time

Never skip out on payments or make late payments. These can have a tremendous impact on your business credit that’s difficult to change. Make it a priority to make payments on time or before they’re due so that you have a flawless payment history to build upon. 

Apply for Business Credit Cards

Business credit cards are often one of the more accessible forms of credit for those looking to build their business credit. 

You may have to start out using your SSN and choose from options like secured cards, but you’ll be able to start off with decent spending limits so you can begin funding your business endeavors right away. 

Business credit cards are perfect to establish good payment history while also purchasing the small things you need for your business. 

Monitor Your Business Credit Score

Every business owner should be checking their business credit scores monthly. 

You will likely have different scores you’re monitoring as there are several score types across the main bureaus. Look into the programs each of these bureaus offer and determine which are necessary for your business at this point in time. 

Then, set up alerts so that you’re staying on top of your credit in real-time and making sure it’s gradually increasing with your credit activity. 

Business credit scores can be new to many business owners. If you’re interested in building business credit to secure more funding, use the guide above to learn everything you need to know about these scores and how you can work towards a better score in your business.

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