Do businesses have credit scores? In addition to your personal credit score, your business has a credit score too, and learning how to check your business credit score and improve this measurement of your creditworthiness is all-important for financing and other reasons. Learn more about your business credit score, how to find it, and what you can do to improve both your personal and business credit scores.
What Is a Business Credit Score?
Just as your personal credit score ranks your creditworthiness as a consumer, your business credit score gauges your creditworthiness as a business. When you’re seeking a business loan or another type of financing, most lenders will look at your personal credit score anyway, but since your business credit score is usually limited to credit actions you’ve taken as a business entity, this metric can provide detailed information on the loan eligibility of your business.
A variety of different agencies provide you the opportunity to check your business credit score, but checking this measurement of your company’s creditworthiness is quite a bit different from checking your personal credit score. At the same time, improving your business credit score isn’t usually as complicated as repairing your personal credit score, and there are some simple actions you can take today to improve your lending eligibility.
How Are Your Personal and Business Credit Scores Different?
Your business and personal credit scores are calculated separately, but that’s not the only point at which these two creditworthiness calculations diverge. Here are a few of the most notable differences between your personal and business credit scores:
Your personal credit score ranges from 300-850, but your business credit score is usually calculated on a scale from 0-100. Therefore, you can think of the number you receive as your business credit score as your “percentage” of creditworthiness; a firm with a credit score of 100 is “100% creditworthy,” but a company with a lower score might only be “75% creditworthy.”
You’re guaranteed free access to your personal credit score. To access your business credit score, however, you’ll have to pay a fee. This creditworthiness information is only available through Dun & Bradstreet, Experian, and Equifax, and each of these business credit bureaus requires firms to pay to see their creditworthiness scores. Keep in mind that each of these bureaus might also have different methods for determining your credit score.
Your personal credit score is private, but your business credit score isn’t. While you have to give permission for others to view your credit score, anyone can view your business credit score as long as they pay the fee. If you haven’t been keeping track of your business credit score, this transparency policy might become a point of embarrassment.
Generally, your business credit score is only calculated based on lines of credit you’ve opened with your business. Keep in mind, however, that some reporting agencies might take your personal credit score into account, and most lending institutions will also consider your personal credit score as they decide whether to give you a loan.
Credit bureaus use largely similar algorithms to determine your personal credit score, but there’s no such standard process for calculating your business credit score. Therefore, your score might vary widely between different business credit reporting agencies.
Why Is Having a Business Credit Score Important?
When you’re first starting your business, it’s natural to use your personal credit to secure financing. You may even acquire lending with a different business entity and transfer the capital to your new venture. If you’re still using personal credit or borrowing under a different business name once your company is established, however, you’re missing out on important opportunities to improve your creditworthiness. Here are three reasons why you should start focusing on your business credit score today:
1. Access to Better Financing Options
You know from experience that when your personal credit score is higher, lenders are more likely to offer you credit, and your repayment terms are better. The same goes for your business credit score; the higher this creditworthiness metric is, the better loan terms you’ll get, and the more you’ll be able to borrow. Some lenders may not even offer any forms of credit to businesses that haven’t established their credit scores.
2. Better Rates on Insurance Policies
Lenders aren’t the only entities that take your business credit score into account. Insurers that cater to businesses also use this metric to determine the risk of insuring clients, and the better your business credit score is, the lower your insurance rates are likely to be. While it might not cost much to insure your business right now, the more your company is worth, the more your insurance rates will rise, so securing cheap rates from the get-go is a great way to save money in the long-term.
3. Separating Business from Pleasure
It’s always a good idea to keep your personal and business finances separate. From accounting to taxes, keeping your business and personal credit separate makes life easier, and the more heavily you lean on your business credit instead of your personal credit, the easier it will be to fund your business operations with financing.
Business Credit Score for Business Loans – Does It Affect Your Terms?
Financial institutions base your loan terms on the likelihood that you’ll pay back the full amount you borrowed. Whether it’s a personal or business loan, the credit terms a financial system offers you are always based on your creditworthiness, which is usually established by the way you’ve behaved with borrowed money in the past.
Therefore, your business credit score is highly influential on the type of loan terms you’ll receive. Remember that the definition of “loan terms” extends beyond just the interest rate; the required repayment window and the total amount of the loan you want changes based on how creditworthy you are.
If you get the feeling that lenders are taking advantage of you with unfair loan terms, it’s possible that you’re at fault and not the bank. You can get much better loan terms that improve your overall growth trajectory if you sink some time into improving your business credit score.
How Is Your Business Credit Score Calculated?
Your consumer credit score is universally calculated using relatively standardised algorithms, which means that it’s roughly the same no matter which credit bureau you use for reporting. Your business credit score, however, fluctuates between the different business credit bureaus because there is no such standardised system in place for business entities.
What’s more, each business credit bureau uses a completely different method to calculate your business credit score, which means that what you learn about one agency’s methods might not apply to a different credit bureau. To make things simple, we’ll break down the details on the credit reporting methods used by each of the major credit bureaus that provide business credit scores.
Equifax separates its reporting into multiple different categories, but it also offers the “0 to 100” general score that competing agencies provide. Your Equifax “payment index” ranges from 0 to 100, and it only provides information on your credit history. This metric is not designed to be a predictor of future behaviour or the overall viability of your business.
In addition to your payment index, Equifax also offers a business credit risk score that ranges from 101 to 992, and this measurement offers a more comprehensive look at the overall creditworthiness of your business. Among other factors, this score incorporates data on the size of your company, your combined credit limit across your revolving credit lines, the age of your credit accounts, and your history of paying vendor invoices on time.
Lastly, Equifax provides a business failure score that ranges from 1,000 to 1,610. If this score is high, your business is unlikely to fail in the next 12 months, but if your score is closer to 1,000, your risky financial decisions are most likely putting you in danger of bankruptcy. If you’ve been using close to 100% of your credit limit for the last three months or you have a history of delinquent payments, overall financial inviability is indicated, and you should do some serious thinking about how to pull yourself out of this nosedive.
Experian offers the most comprehensive look at your finances of any of the three major business credit reporting agencies. While other bureaus only look at your financial dealings, Experian takes your legal history into account as well as it dredges through local courthouse records and business licensing to find out if you’ve ever filed for bankruptcy or otherwise found your business caught up in legal action.
Like the other agencies, Experian offers a “0 to 100” overall creditworthiness measurement called a “CreditScore report.” The closer to 100 you are, the more likely you are to get good credit terms, but if you have a low credit score report, you have some serious work to do if you want to get the most out of your financial arrangements.
Experian is also the most unrelenting in its scoring methods. Even if you’ve handled your finances perfectly, this credit agency will most likely label your small business as “medium-risk;” the only way to make your operation look less risky in Experian’s eyes is to get established and prove you have what it takes over the long haul.
Dun & Bradstreet Methods
Like Experian and Equifax, Dun & Broadstreet provides a “0 to 100” scale in the form of a “Paydex” score. D&B breaks this score down into two additional categories known as your “financial stress score” and your “commercial credit score,” which help lenders determine whether they should give you credit.
To receive a Paydex number from Dun & Broadstreet, you’ll first need to file for a free DUNS number. You’ll also need to provide records of payments made to at least four vendors or other entities. Based on the data this agency gathers, you’ll be assigned a commercial credit score between 101 and 670, and if your score is low, your credit history reflects a high likelihood of late or delinquent payments.
D&B’s financial stress score ranges from 1,001 to 1,610, and it evaluates the likelihood that your business will fail based on how much credit you’re using and how wisely you’re using it. Like Equifax, however, Dun & Broadstreet only looks at your lending history and doesn’t check any court records or gather information via any other channels.
Business Credit Calculation Methods – General Notes
It’s important to remember that business credit reporting is a much smaller enterprise than consumer credit reporting. There are far more consumers than there are businesses, and companies choose to check their credit scores much less frequently than consumers. When you pay to get your business credit score, therefore, don’t expect as high-quality of a product as you’re used to getting when you request your personal credit score. All three of the major business credit reporting agencies are known to make mistakes from time to time, and these errors can usually be resolved by contacting the agency.
While this information is verified by third-party entities, it’s important to remember that each credit bureau collects information on you with different methods. That’s part of why each agency typically provides different results; there’s no standardised method for acquiring your business credit score, which means that you can’t use a Dun & Bradstreet score in place of an Experian score, for instance.
How to Run a Business Credit Score Check
Before we continue, it’s important to leave a reminder that there’s no such thing as a free business credit score check. Whether you work with Experian, Equifax, or D&B, you’ll need to pay a fee to check your business credit score. With that out of the way, we’ll provide a quick tutorial on how to check your business credit score:
Equifax offers some of the best customer service in the industry, which might be why this company charges more for its business credit checks. Get started by clicking the link above.
Although this agency offers the most rigorous check of your business history, getting a business credit check from Experian is also the cheapest option on this list.
When you run a credit check with Dun & Broadstreet, you can access your report for six months after the reporting date. Also, D&B provides you with a credit limit recommendation to help make sure you don’t get yourself in the red.
Don’t overdo things; it’s usually best to limit yourself to checking your business credit score once per year. If you want to be as thorough as possible, you can check your score with all three reporting agencies, but each bureau provides you with basically the same information. Many companies simply pick a reporting agency that they like and stick with it for years.
How to Improve Your Business Credit Score
The first and foremost way to improve your business credit score is to check this metric frequently. While getting your score from all three agencies every month might be overkill, you should keep a regular eye on your business credit score to make sure it doesn’t get out of hand. From there, you should also observe these five simple tips to get yourself out of a credit hole or retain your impressive business credit score:
1. Make On-Time Payments
Making your payments on time is the most effective way to improve your business credit score. While credit bureaus don’t base the entirety of their scoring criteria on your history of on-time payments, this factor certainly plays a huge role in how these agencies calculate your creditworthiness. Missing even one payment can severely harm your business credit score, and if you make a habit of paying vendors late, you might find yourself incapable of getting loans from reputable financial institutions.
2. Register Your Business Properly
While it might seem silly, making sure that your business is registered properly is one of the best ways to ensure that your business credit score stays high. If your business isn’t on the books or is improperly categorised, you’ll have a hard time convincing lenders to finance your operation, and you might not have a business credit score at all. Check with relevant local agencies in your area to make sure your business registration is up to snuff.
3. Open Business Lines of Credit
Just like your personal credit score, your business credit score is impacted positively when you demonstrate that you can hold multiple lines of credit without making late payments or otherwise gaining the ire of credit card issuers and other purveyors of business lines of credit. Don’t open lines of credit willy-nilly thinking it will get a great score, however; while quantity is important, business credit reporting agencies also value the quality of your credit relationships. Start by showing that you can handle 2-3 lines of credit, and gradually work upwards from there.
4. Ask Your Vendors to Report Payments to Credit Bureaus
Credit bureaus can only establish your business credit score based on the information they have at their disposal. If your vendors don’t report your payments, for instance, this data won’t make its way into the hands of credit agencies. Many businesses perform the majority of their transactions via invoices, but since these interactions aren’t finance-based in a traditional sense, they won’t show up on your credit score unless you’re proactive. Ask each of your vendors if they report payments to credit bureaus, and if they don’t, see if you can convince them to start.
5. Protect Yourself from Data Breaches
Even though they aren’t your fault, data breaches generally make lenders view your company less favourably. There’s nothing worse than having a perfect business credit score and watching it all be destroyed by an unfortunate data breach, so taking active measures to protect yourself from fraud will help you maintain a good business credit score in the long run. Monitoring your credit reports is a great way to stay on top of things, and you might want to consider discussing the benefits of comprehensive fraud protection with your team.
Your Business Credit Score and CreditDigital
Rather than providing you with a lump sum or a line of credit, CreditDigital offers you the full 100% of your invoice values to get you the working capital you need. Instead of relying on your business credit score, we check the credit scores of your clients to determine their creditworthiness, which also saves you the hassle of practising credit control.
If you’re struggling to find ways to fund your business and it will be a while until your business credit score is in order, CreditDigital is the perfect solution. With our revolutionary service, you can simply incorporate a “Pay with CreditDigital” button into your checkout page, and your customers will be presented with a simple, digital-era interface for getting the goods they need while providing you with payment in full.
As you work to improve your business credit score, rely on CreditDigital to keep up with your growth goals. Experiencing cash flow issues is never fun, but with CreditDigital, it’s easy to get what you’re owed on time, every time.
Brushing up on the following terms might help you get the most out of improving your business credit score:
1. FICO Score
Your FICO score is your consumer credit score. While FICO scoring isn’t widely used in the UK, your FICO score is calculated using complex algorithms that take your credit history, credit utilisation, quantity of lines of credit, and other factors into account to rank you somewhere between the lowest score (300) and the highest score (850).
2. Adverse Credit History
Your adverse credit history is the collection of events that have led to a credit score reduction. For instance, derogatory remarks and late payments can contribute to your adverse credit history.
3. Credit Bureau
A credit bureau is an independent organisation that provides credit reporting services to consumers and businesses. These entities use complex algorithms and other methods to assign your creditworthiness with a score that’s easily understood by lenders and other parties that want to know more about your credit eligibility.