A Guide to Business Credit Scores

A business credit score, which is distinct from a personal credit score, is a number that lenders and suppliers use to determine the availability and pricing of loans and other forms of credit for a firm. It’s based on a company’s use of credit and payment history, as well as other factors, including business revenues, assets and industry. Here’s how they’re calculated and how to improve yours.

The credit score of your business should be considered strategically important information for you. That’s one reason why working with a financial advisor on related subjects can be valuable.

There are important differences between your business credit score and your personal credit score. For example, agencies use an employer identification number for a business credit score rather than a Social Security number. Business credit scores are public and reflect fewer variables than a personal credit score.

Another difference is that business credit scores use different ranges. The most common is 0 to 100, with anything over 75 generally considered a good score.

In addition to being used by lenders, business credit scores are also used by vendors and suppliers to set terms of trade credit. When other businesses are deciding whether to sell products, materials and services to your business, they may use your business credit score to help determine the terms they’ll offer.

On the other hand, the two are fundamentally similar in important ways:

Both employ a number to express the level of risk a lender faces in loaning to your business.

Both are used by lenders to decide whether and how much to loan and how much interest to charge.

Both are largely based on prior credit use and payment history.

Business Credit Score Sources

Three business credit reporting agencies and one federal agency are the main business credit score providers.

Dun & Bradstreet calculates three business credit risk assessments, with the main one being its Paydex score. It ranges from 1 to 100 and is based on a business’s past payment performance. A score over 80 is considered good.

Experian’s Business Credit Score also goes from 1 to 100. A score of 60 indicates low to medium credit risk.

Equifax Payment Index is one of four business credit scores the credit bureau offers. Unlike the other business credit scores, a lower Equifax score is better. A score of 20 to 30 is typical.

FICO Small Business Scoring Service (SBSS) is used by the Small Business Administration for its loan approvals. FICO isn’t a credit bureau. It combines scores from the other three to generate the SBSS scores.

Business Credit Score Factors

The business credit score companies use many different factors to calculate their numbers. Some of them include:

Credit history. How much credit your business has used and how promptly you have made the loan payments.

Annual sales or revenue. This metric reflects a company’s ability to service its debts.

Time in business. The longer your business has been around, the more positive the effect on your business credit score.

Business assets. A business that owns valuable property is likely to get a better score.

Other debts. Having some existing loans and credit cards with a balance and good payment history will be seen as a positive.

Which industry. Restaurants are often considered higher risk than other types of businesses.

The credit bureaus obtain the information to make these calculations from many different sources. Sources include:

Previous loan and credit card applications

Business tax filings

Business registration documents such as articles of incorporation

Legal filings such as bankruptcy cases and tax liens

Improving Your Business Credit Score

Raising your business’s credit score can provide a meaningful advantage. The difference can affect whether your business can get a loan, how costly loans will be and whether suppliers and vendors will grant generous trade credit terms or demand cash on delivery.

A first step to improving your business credit score is finding out what it is. Business credit scoring companies will tell you your business credit score for a fee.

Generally speaking, the same techniques used to build and improve a personal credit score are used to build and improve a business credit score. That is, obtain and use business credit cards and loans and make the payments on time.

It’s important to establish business credit separately from personal credit. That means having separate credit cards, bank accounts and loans just for the business to use. However, there are limits to how well this will work. Some lenders will still want to consider the owner’s personal credit history and score before extending credit.

The Bottom Line

Firms often rely on financing to grow their operations, and their ability to access financing depends in part on their business credit score. There are both similarities and differences between a business credit score and a personal credit score. A major difference is that personal credit scores are considered private information and protected from public scrutiny while anyone who is ready to pay to get your business credit score from a reporting agency can get it.

Tips on Business Credit Scores

A financial advisor experienced in business credit scores can help you raise the credit score of your business. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Defaulting on a business loan can have lasting impacts on your company’s financials. If your small business is struggling to pay its debts and your creditors are threatening to take your assets, bankruptcy may be an option. It’s important to understand the differences between the various types of bankruptcy available to small business owners.