While individual consumers are assigned a personal credit score based on their credit usage, payment history, and other factors, the same is true for businesses and business credit scores. That said, there are important differences between personal scores and business credit scores that make each type unique, including which third party or credit bureau assigns the score.
Similar to a consumer's personal credit score, a business credit score can impact how a business operates and whether it qualifies for financing at the best interest rates and terms. This guide to business credit scores explains the most common types, what a good business credit score looks like, and how to build business credit for the future.
What is a business credit score?
A business credit score is a score assigned to a business that indicates how well the business manages its credit and how much of a risk it represents to lenders. These scores are determined using similar factors to personal credit scores, including payment history, credit usage, length of credit history, and a combination of credit types in use.
All types of businesses can have a business credit score, from large corporations with thousands of employees to sole traders. The key to obtaining a business credit score is for lenders, suppliers, vendors, or a combination thereof to report payment history and other details to credit bureaus. For example, if you have a business credit card that reports to a business credit bureau, you probably have a business credit score.
What is a good business credit score?
Unlike personal credit scores from the three credit bureaus (Experian, Equifax, and TransUnion), which follow a similar format, business credit scores can vary widely depending on where the information is obtained. In other words, what qualifies as a “good” business credit score can vary widely depending on the company that creates it.
Below are the five most common business credit scores and details on how each type works.
Dun & Bradstreet PAYDEX Score
Dun & Bradstreet is a business credit bureau specializing in business credit and is the origin of the Dun & Bradstreet PAYDEX Score. According to the company, the PAYDEX score is a “dollar-weighted measure of a company's past payment performance” and can take a value from 1 to 100.
A PAYDEX score above 80 is typically considered “good,” but Dun & Bradstreet actually breaks down scores into three different risk categories. These risk hierarchies display the risks at each level as follows:
Interestingly, scores are not automatically generated. Businesses must sign up for their DUNS number on the Dun & Bradstreet website to be assigned a PAYDEX score. This allows vendors and other third parties to report your payment history to this credit bureau.
Experian Intelliscore
Experian, a leading consumer credit reporting company, also publishes business credit scores. Experian Intelliscore Business Credit Score has two types: Intelliscore Plus and Intelliscore Plus V2.
Intelliscore Plus uses factors such as trade line and collection information, public filings, new account activity, recent credit inquiries, and key financial ratios to assign a score. Meanwhile, Intelliscore Plus V2 creates a credit score based on “a wide range of Experian transaction, collection, public record, and business demographic data,” according to the credit bureau.
Both types of Experian Intelliscore allow businesses to have a business credit score between 1 and 100. Higher scores are better, and scores above 76 are considered “good,” but here's how Experian breaks down score ranges based on different levels of risk.
Equifax Business Credit Score
Equifax is another major consumer credit bureau that also covers business credit. Equifax has two types of business credit scores: Business Credit Risk Score and Business Failure Score.
Equifax says its Business Credit Risk Score is designed to help businesses “set appropriate credit terms based on the likelihood of business failure or payment delays.” and post-recession data. The Business Failure Score, on the other hand, is created using a risk scoring model that predicts the likelihood that a company will go out of business within the next 12 months.
Because these two business credit scores are different from each other, they use different ranges to indicate where a company falls on the spectrum based on its risk level.
Equifax Business Credit Risk Score
Business credit risk scores range from 101 to 922. A higher score indicates a lower overall risk level. A “good” business credit risk score is typically considered a score of 700 or higher.
Equifax Business Failure Score
Business failure scores range from 1,000 to 1,880. A higher score indicates a lower risk of bankruptcy. Equifax's “good” business failure score is typically a score of 1,315 or higher.
FICO SBSS Credit Score
FICO, a credit scoring model company and not a credit bureau, produces business credit scores known as FICO Small Business Scoring Service (SBSS) credit scores. According to FICO, its score is one of the most widely used in assessing the risk of U.S. small business credit applicants applying for Small Business Administration (SBA) loans.
FICO SBSS credit scores always range from 1 to 300, with 300 being the highest score. Businesses applying for SBA loans typically must have a score of 155 or higher.
How can I check my business' credit score?
While there are many ways to check your personal credit score for free (including the MyFICO.com website), the same cannot be said for your business credit score. Each third party company or business credit bureau that creates a business credit score must purchase the reports and scores on a one-time or subscription basis.
The cost of obtaining a business credit report and score varies from company to company and depending on the method you choose. For example, you can buy a business credit report and his PAYDEX score from Dun & Bradstreet for $139.99 for your company or other business.
Some companies also offer business credit report monitoring services. This is intended to prevent theft of corporate information while providing an added layer of protection for sensitive data.
Business credit score calculation
Although different business credit scores are calculated in slightly different ways, each model relies on many of the same factors. These include:
- The age and size of the company.
- Credit utilization rate.
- Established trade lines.
- Length of credit history.
- Combination of active credit products.
- Payment history to creditors, lenders, vendors, and other third parties.
- Public document information.
- Risk of failure based on industry.
Key differences between personal credit score and business credit score
Personal credit scores and business credit scores work similarly, but personal credit scores are for consumers and business credit scores are for businesses. There are other differences between personal credit and business credit, including:
Score type
Although some companies overlap, the types of consumer and business credit scores are quite different. We've already talked about the types of business credit scores you can get in this guide. The most popular consumer credit scores are the FICO score and the VantageScore credit score.
SSN vs. EIN
Consumer credit is tied to your Social Security Number (SSN), while business credit is tied to something called an Employer Identification Number (EIN). Where governments use SSNs to recognize individuals for tax purposes, EINs are the way government agencies recognize businesses for tax purposes.
However, when it comes to business cards and personal credit cards, you may find that some business card applications require both an SSN and an EIN. That's because you can build business credit with a business credit card that requires a personal guarantee.
legal protection
Consumer credit comes with far more legal protection than business credit. For example, small businesses are not eligible for the legal protections afforded to individuals by the Credit Card Accountability and Disclosure Act of 2009 (CARD Act).
Benefits of business credit scores
Business credit scores are beneficial for several main reasons. First, having business credit means you can apply for business credit cards and loans and get financing faster and easier than if you applied as an individual using your personal credit score. To do.
Second, a high business credit score can help you get favorable interest rates and terms when borrowing money, even if a personal guarantee is required.
There are also situations where businesses want to borrow money without risking their personal credit. In that case, having a business credit score and his EIN may be the only way to get approved.
How to increase your business credibility
Many of the same steps needed to increase your personal credit score also apply to your business credit score. Whether you're building your business credit from scratch or want to improve one of your business credit scores before applying for a business credit card, the following efforts can help.
- Keep your debt levels low: Keeping your debt levels low shows that you are not overly strapped for cash and are operating your business without maxing out your available credit limit.
- Monitor your progress: Monitoring your business' credit over time can help you identify problems or misreporting. Knowing about these issues early on gives you an opportunity to address them.
- Remember to pay: Just like your personal credit, your payment history can affect your credit score. Make sure to pay all vendor and business-related bills on time each month, without exception.
Timestamp: Business credit score can affect your company's potential
If you want to apply for a business loan to invest in inventory or equipment, a solid business credit rating can help you get your loan application to the finish line. Without business credit, you may have to use cash or personal credit to finance your company.
This is just one reason why having a business credit score can benefit you, but there are others as well. In summary, a business credit score helps your business reach its full potential.
Frequently asked questions (FAQ)
How do you check your business' credit score?
You can't check your business credit score for free like you can your personal credit score. You should purchase business credit reports and scores from companies that offer this option, such as Dun & Bradstreet, Experian, and Equifax.
How long does negative data remain on a business credit report?
According to Experian, negative transaction data can remain on a business credit report for 36 months (3 years). Bankruptcies, on the other hand, are reported for nine years and nine months, collections, judgments, and tax liens are reported for six years and nine months, and Uniform Commercial Code returns are reported for five years.
If my business is new, do I have a business credit score?
If your business is new, you may not have a business credit score. If your business does not have relationships that would result in the reporting of your business activities to the business credit bureaus, you will never receive a score.
