All About Business Credit Scores (A Two-Part Series)

If you own or run one of the United States’ 30 million small businesses, chances are high that at one time or another, you’ll need access to cash. Without it, you may have challenges growing your business or even just keeping it afloat. In fact, 82% of companies that fail do so because of cash-flow issues. That makes it critical that you understand the ins and outs of small-business financing, including business credit scores, which have a major impact on your ability to access financing when you need it.

What about business credit scores and how do they differ from personal credit scores?

Just like your personal score, your business credit score is a numerical representation of your creditworthiness. Like your personal score, your business credit score is calculated using various pieces of information that can be found on your business credit report. However, your business credit score usually spans a range of zero to 100, while a personal score begins at 300 and tops out at 850. While most bureaus that calculate personal scores will use FICO’s algorithms to determine your score, the firms that calculate your business credit score each use their own algorithms, so your score can vary more widely from bureau to bureau. Your personal scores and reports are available for free (once per year) at all three major consumer-credit agencies, and can only be accessed by you and by potential lenders and other select parties. By contrast, you have to pay to access your business credit scores and reports, and they can be viewed by anyone willing to fork over the fees.

Why can’t I just use my personal credit score?

When your company was in its infancy, you could (and had no other choice but to) rely on your own personal score. Lenders use this to evaluate business creditworthiness when a business is too young to have built up a business score. In fact, even as your business ages, lenders will still consider your personal scores along with your business scores. However, with good business credit scores, your company may be able to access the financing you need more easily, reduce your insurance premiums, and create an additional layer of separation between business and personal finances.

Where can I find business credit scores for my business?

Three major business-credit agencies that monitor and score your business credit history and creditworthiness are Dun & Bradstreet (D&B), Experian, and Equifax. As mentioned above, each of these companies calculates your score differently, so it’s wise to check all three—but don’t compare them to one another, because it’s not an apples-to-apples comparison. Instead, check all three at least once a year, as well as before you apply for any financing.

What goes into the calculation for business credit-scores?

Each of the three major reporting agencies calculates your score differently, but in all cases, low scores are bad and high scores are good.

Dun & Bradstreet: D&B uses payment data from your lenders to evaluate your credit risk based on a Paydex score that ranges from zero to 100. However, it also provides lenders with two other important scores: your commercial credit score and your financial stress score. Your commercial credit score ranges from 101 to 670 and predicts your risk of making a delinquent payment within the next year. Your financial risk score predicts how likely your business is to fail over the next year, and that score ranges from 1,001 to 1,670.

Equifax: Like D&B, Equifax uses payment data from your lenders to produce a score called a payment index that ranges from zero to 100. Equifax, too, produces two separate assessments to predict your company’s future. The first is called a business credit risk score, and it rates how likely your business is to become severely delinquent on payments. Scores range from 101 to 992. The second is called a business failure score and predicts your company’s likelihood of failing in the next year. This score ranges from 1,000 to 1,610.

Both D&B and Equifax use other information besides payment data to predict your business’ future, including:

• Company size and age
• The age of your oldest financial account
• Your available credit limit on all revolving credit accounts, now and in the recent past
• Evidence of delinquent or charged-off vendor invoices
• Late payment history or delinquencies on any accounts, now and in the recent past

Experian: This bureau produces an assessment called a CreditScore report, which includes your business credit score. Though based on the same range (zero to 100) as the other major reporting agencies, it’s calculated differently. In addition to payment histories, this score uses your loan balances, public records, and legal filings, as well as background information on your company, including its size, age, and payment history with vendors and suppliers.

What’s Next about Business Credit Scores?

In the second in this two-part series, we’ll discuss how your business’ credit score impact your borrowing power, how to boost your score, and what you can do if you need access to capital but have too low of a score.

Have questions now? Want to find out your financing options? Contact Villa Nova Financing Group! We can answer your questions, offer advice, help you prepare to apply for a loan, and, of course, analyze the best loans for your situation, then seek out the very best lenders and terms from our extensive network of lenders.