Understanding Business Credit Scores and How They Work
Are business credit scores the same as personal credit scores? How are they calculated? These might be some questions you want to answer if you’re a small business wishing to expand. Keep reading to learn what business credit scores are and how they work.
What is a Business Credit Score?
A business credit score is self-explanatory. It’s a number that shows if a company is qualified to be a business customer or obtain a loan.
This score depends on the credit report of the business, which includes information like:
- Historical data
- Number of employees in the business
- Previous transactions
- Account information
- Debt
Typical business credit scores are ranked from 0 to 100, while others, like FICO Small Business Scoring Service, range from 0 to 300.
Main Business Credit Bureaus
There are several companies that compile business credit reports. But In the United States, the three main departments are:
- Dun & Bradstreet
- Experian Business
- Equifax Small Business
You might be familiar with Equifax or Experian because these two handle popular consumer credit reporting agencies too.
These bureaus produce different scores using different tools to give creditors enough information on the financial health of any firm. For instance, Dun & Bradstreet includes delinquency predictor scores and familiar scores.
Benefits of a Business Credit Score
There are many instances where it’s best to create a separate financial account for your business. Check out the benefits of a business credit score.
Business Loans
This is the most common reason business owners separate their personal and business finances. Once you have an improved business credit score, you’re more likely to borrow the money you need for your company.
Financial Capabilities
A business credit card allows your company to purchase products and services for your business at a low interest rate. Look for business credit cards that seasonally offer a zero percent interest rate.
Rewards
Credit card rewards are as common in business as they are in personal accounts. Enjoy cash back on your purchases or extra points on your flight to quickly reach your business goals.
How to Calculate Business Credit Score
As you already know, scoring models vary according to bureaus. But these common factors play an essential role:
- Payment history
- The size of the company
- Established trade lines
- The industry’s risk of failure
- Credit utilization
- The oldest financial account
What Makes a Good Business Credit Score?
There are some variations among credit bureaus regarding credit scores.
Dun & Bradstreet considers Paydex scores of 80 or higher as low risk, while Equifax indicates that a Payment index score of at least 90 means your bills are paid on time.
The business credit score of Experian treats high scores as low risk for severe payment delinquencies.
Dun & Bradstreet failure score ranges from 1,0001 to 1,875, with a lower score translating to a high risk of bankruptcy within the year. Meanwhile, Equifax’s failure score ranges from 1,000 to 1,880.
Business Credit Scores are Crucial
Your credit score on your business account will determine whether you can get financing for business properties or loans. Therefore, it determines your startup company’s ability to grow and succeed.
Make sure to pay your bills on time and enhance your credit utilization to reap the benefits of a good business credit score.
