What Business Credit Is, Why It Matters, & How To Check Your Business Credit Scores
We take look at why a good business score is important, the different types of business credit scores, how they're calculated, and how you can access yours.
While personal credit scores are ubiquitous these days, business credit scores are often less discussed. It makes sense — from applying for a mortgage to renting an apartment to applying for a loan or credit card, a personal credit score is a reflection of an individual’s creditworthiness. As such, personal credit scores are needed for so many things.
Personal credit scores even come into play when applying for business loans or other sources of business funding. However, small business owners and decision-makers need to make sure they also understand business credit scores — a business credit score can affect access to funding or other crucial business tools. And, just like with personal credit scores, a business credit score reflects a business’s creditworthiness.
In this post, we’re going to explain your business credit score and whether or not it is important (spoiler alert: it is). We’ll also look at the different types of business credit scores, how they’re calculated, and how you can access yours.
Whether you currently own a business or you’ve been toying with the idea of becoming an entrepreneur, read on to learn everything you need to know about how to check your business credit score and why it matters.
Table of Contents
What Is Business Credit?
Business credit is a simple idea: It is merely your business’s ability to buy something on credit. The viability of your business credit is then measured via your business credit score. Instead of using your personal accounts and payment history, your business credit score is based on your business’s accounts and payment history.
Your business credit score is a reflection of the riskiness of your business. Lenders, insurance companies, and even vendors may take your business credit score in to account when determining whether to approve a loan, underwrite an insurance policy, or provide you with a credit account.
A higher credit score means that you’re a more creditworthy borrower that makes payments on time, making your business less risky. On the other hand, a low business credit score may indicate that you’ve had trouble paying off your debts in the past, making you a risky borrower.
Why Your Business Credit Matters
Your business credit history (and score!) matters whenever you open an insurance policy, apply for a business loan, or try to obtain credit. Lenders, vendors, and insurance agencies typically pull your business credit score.
Your business credit score not only determines if your policy or financial product is approved, but it’s also used to get lower rates on insurance policies, more favorable terms for loans, and open up higher borrowing limits.
If your business credit score is low or non-existent, you may not qualify for certain financial products. Your insurance rates may be higher, your borrowing limits lower, and your rates and terms on loans not as favorable. This is why it’s important to boost and maintain your business credit score.
If you own a business, you most likely have a personal bank account and a business account. Establishing a business credit profile is another way to keep your business and personal expenses separate. While it may not seem like a big deal now, you’ll be grateful for the separation come tax time.
One final thing to note is that while having a high business credit score is important, it’s not the only factor that lenders and others will use to assess your creditworthiness. Debt-to-income ratio, annual revenue, and personal credit score may also be used in addition to your business credit score and report.
Business Credit VS Personal Credit
Business and personal credit scores are similar in that they represent creditworthiness. However, there are a few distinct differences between the two.
The primary difference is that your business credit score measures the creditworthiness of your business. Your personal score measures your individual creditworthiness based on your personal accounts. For example, a business credit card in the name of your business affects your business credit score. In contrast, a personal credit card in your own name is reported on a personal credit report.
Another difference is how these credit scores are calculated — your business credit score considers factors that don’t affect your personal credit score. These include your time in business, your industry, and the number of people your business employs.
Your permission is required before a business or individual can pull your personal credit score, but the opposite is true of business credit scores. Business credit scores are considered public information, so your permission is not required.
How To Check Your Business Credit Scores
By now, you should have an understanding of business credit scores as well as why you need to know yours. The next step is to pull your scores to see where you stand and then take steps to boost or maintain your business credit score. This section will focus mostly on getting scores from the three major business credit bureaus: Dun & Bradstreet, Equifax, and Experian.
Before you get started, make sure that you have your Employer Identification Number (EIN). This number can be obtained for free through the IRS and is used for tax purposes. If you already have an EIN, it’s likely that you already have business credit profiles available through Equifax and Experian.
Do note that while there are free options for obtaining your personal credit score and report, unfortunately, credit bureaus are not legally obligated to provide you with a free business credit score or report. However, there are plenty of affordable services available when you want to see where your business credit stands. Some services allow you to sign up at no cost and may provide some features; for others, you will be required to pay a one-time fee, monthly subscription fee, or annual fee to take full advantage of these services.
Free Business Credit Score Options
None of the primary three business credit bureaus offer free reports. However, marketplace lender Nav does enable businesses to check credit scores for free. Nav also provides the ability to access summary reports and business credit grades with a free account.
Paid Business Credit Score Services
If you’re willing to pay to access a credit score, you’ll have a few more options. Here’s what the three main credit bureaus charge to access credit scores:
- Dun & Bradstreet: To get access to your PAYDEX score (the credit score Dun & Bradstreet assigns businesses), you’ll need to pay at least $61.99. Dun & Bradstreet also offers other, more detailed credit reports with costs ranging from $139.99 to $189.99 (the more expensive of these promises continuous tracking). You can also buy reports at a discount when you buy five or more. Note that you must first apply for a D-U-N-S number to receive your Dun & Bradstreet credit report.
- Equifax: Single business credit reports can be purchased from Equifax for $99.95. You can also buy five reports for $399.95. Equifax’s reports generate three numbers: one based on your business’s payment history, one that predicts how likely you are to skip payments to creditors, and another that predicts how likely your business is to fail.
- Experian: Credit score results through Experian can be purchased for as low as $39.95. A more detailed report can also be purchased for $10 more. Experian additionally offers an annual plan of $189 per year that enables daily credit monitoring, unlimited report access, and credit inquiry alerts.
How To Improve Your Scores
As previously discussed, maintaining a high business credit score is necessary to receive the best interest rates, the lowest insurance premiums, and to open up more funding opportunities for your business. To improve your business credit score, the first step is to make sure that you’ve established credit with the big three (Experian, Equifax, and Dun & Bradstreet). You also need to apply for your EIN and D-U-N-S number if you haven’t already.
Don’t stop there, though. To get your company on the radar of the credit bureaus, you must have open accounts specifically for your business. This could include a business phone line, business credit cards, and a business bank account. Opening a trade line with a vendor is an easy way to raise your score, provided you make your payments on time. Your credit score could also get an additional boost when you pay off your debts early.
Small business loans can also help lift your credit score when paid as agreed or paid off early. However, if you haven’t yet established business credit, your business loan options may be limited. Consider applying for a line of credit or another form of funding that doesn’t require a business credit score to improve your credit profile. Also, remember that not all lenders report to the credit bureaus, so ask the lender before accepting the offer.
Finally, monitoring your business credit is a smart move for business owners. This allows you to track your progress as well as identify errors that are dragging your score down.
Learn more about ways to raise your score in our post on improving your business credit score.
Whether you’re ready to expand, need a low-interest loan, or plan to grow your business in the future, having a solid business credit score is a must. A solid business credit score equals more funding opportunities and big savings with lower interest rates and insurance premiums. If you haven’t yet established a business credit history or your score is low, simply use the tips we’ve provided to get on the right track. Good luck!