Business Credit Scores Explained

Anybody who’s ever tried to get an apartment, credit card, and/or personal loan (or a plethora of other services) knows the importance of having a good credit score. This score reflects your creditworthiness; in other words, it tells anybody granting you services how likely you are to consistently pay on time.

Did you know that your business also has a credit score? If you own a business, chances are somebody out there is keeping track of your business’s creditworthiness right now.

While some businesses have lived a long and content life without paying attention to credit, you will want to pay attention to this score if you’re ever going to need business financing or other financial services. Many service providers look at your credit before allowing you to use their services. The better your business credit, the more services you’ll have access to, with better rates and fees.

And if your credit score is bad? You might have a difficult time getting access to the services you need. Don’t take it from me—take it from Levi King, the current CEO of Nav, who once had trouble getting a loan because of mistakes on his business credit report.

Read on to learn everything you need to know about your business credit score.

Business vs. Personal Credit

Business and personal credit scores exist for the same reason: they are scoring methods that measures the creditworthiness of a debtor. There are a couple differences worth noting, though.

Quite simply, the biggest difference between the two is that a personal credit score measures the creditworthiness of a specific person, whereas a business credit score measures the creditworthiness of a business. Like a personal score, the business’s payments history is taken into account. However, some characteristics more or less outside of your control are also included, like your time in business, your industry, and the number of people you employ.

Also, other people can access your business credit score without permission, which isn’t legal with personal credit. If you really wanted to, you could measure the credit scores of your competitors.

Business Credit Basics

Okay, I lied when I said that your business has a credit score—it actually has many.

There are quite a few companies that keep track of business credit, the largest of which are Experian, Equifax, and Dun & Bradstreet (D&B). Because nothing in life is easy, there is no standardized way of measuring business credit. Each company has their own way of calculating risk, along with their own scoring models to reflect their findings. Here’s the lowdown on each one:

Experian

Experian collects information from your payment history, public records about your business, and demographic information to calculate a Credit Ranking Score (sometimes called the Intelliscore Plus). This score ranges from 1 – 100, and is used to predict how likely you are to pay on time.

In this case, higher is better. A score of 76 – 100 indicates that your business settles debts on time. Scores below that indicate various gradations of risk. Here is a full breakdown of what the numbers mean.

A credit report from Experian also includes other information about your business like your average days beyond term (which indicates how many days late you generally make payments), how many UCC filings and liens you have, how many inquiries have been made on your report, and other information. Here is a sample report from this company.

Equifax

Equifax has a score called the Payment Index. Unlike Experian’s Intelliscore, Equifax’s score only takes past payment history into consideration. Once again, the scale runs from 1 – 100. A score of 90 or above indicates that you’ve been paying your suppliers on time, and anything below that indicates how late, on average, your payments have been.

The Payment Index is not supposed to be a predictor of future performance, though. For that, Equifax has two other scores: the Business Credit Risk Score, and the Business Failure Score.

The Business Credit Risk Score is an indicator of how likely you are to become more than 90 days past delinquent on your debts. This score falls on a scale that ranges from 101 – 992. A higher score indicates less risk.

As you’d expect, the Business Failure Score indicates how likely your business is to fail or go bankrupt within the next 12 months. The scale ranges from 1,000 – 1,880. Once again, the higher your score, the lower your chances of business failure.

Here is the only sample report I could find for Equifax; it’s about nine years old, so keep in mind that a modern report might look a little different. And here is an FAQ about the company’s business credit reports.

Dun & Bradstreet

D&B measures risk with their PAYDEX score. Like Equifax’s Payment Index, the PAYDEX score aggregates how well you paid off your debts in the last year. The score ranges from 1 – 100, with higher scores indicating a better payment history.

• 80 – 100 is a low risk of late payments
• 50 – 79 is a medium risk
• 0 – 49 is a high risk

More detailed credit reports also include a Commercial Credit Score and a Financial Stress Score.

The Commercial Credit Score ranges from 101 – 670, and predicts how likely you are to become extremely delinquent or default on your loans in the next year. A lower score indicates a higher risk of delinquency.

The Financial Stress Score predicts how likely your business is to fail within the next year. This number ranges from 1,001 – 1,875, with a lower number indicating a higher risk of failure.

To see a sample of D&B’s credit reports, go here.

The FICO SBSS Score

Aside from the scores used by Experian, Equifax, and D&B, there’s one other score you need to know about: the FICO LiquidCredit Small Business Scoring Service (FICO SBSS for short). The score ranges from 1 – 300, with a higher score indicating a higher chance that you’ll repay your debts on time.

The SBSS score is a combination of your personal and business credit. The thing that makes the SBSS score special, though, is that the viewer can change what characteristics are included, and how important those characteristics are. Information can be pulled from any and all credit bureaus in the order of the viewer’s choosing.

Because the SBSS score is so versatile and aggregates the scores from the other credit bureaus, it’s a very widely used score. Normally, creditors like to see a score of at least 140 or 160.

How to Establish Credit

All you need to get some credit profiles going are two numbers.

If you’ve got an Employer Identification Number (EIN), chances are you already have a credit profile with Experian and Equifax. If you don’t have an EIN, I’d advise you to get one from the IRS website as soon as possible. This number is used by the IRS for tax reasons, and you need one to do things like open a bank account in your business’s name, get a credit card or loan, or hire employees.

In addition to an EIN, to get a credit profile started with D&B, you’ll have to apply for a D-U-N-S number. This nine-digit number is how D&B identifies your business. You can get a number via the D&B website. It’s completely free, unless you want to expedite the process.

Once you’ve got the profiles going, maintaining your credit score is as simple as ensuring that you make payments on time.

Last Words

Although business credit is more difficult and expensive to obtain than personal credit, industry experts recommend that you check your business credit at all the major bureaus at least once a year. Reports can be purchased via the credit bureau’s websites, and your SBSS score can be checked via Nav.

If nothing else, you’ll want to do a periodic check on your credit score to ensure there are no mistakes on your report. Remember the fellow I talked about in the intro who couldn’t get a loan because of mistakes on his report? That’s not unusual—a few years back, the WSJ found that about a quarter of business credit reports have at least one error. And we thought that personal credit scores were bad.

While it might be a little bit of work, maintaining your business credit can help your business immensely in the long run. A good credit score is a stepping stone to better rates and fees for services, which can grant your business a little more financial freedom.