A business credit score is a number assigned by a calculation from one of the three business credit bureaus (Dun & Bradstreet, Equifax Small Business, and Experian Business) and is used by companies that loan, lease, invest, or offer credit to determine how risky the company borrowing may be. A higher business credit score means the company is a lower risk, and a lower business credit score means it is a higher risk.
Each of the three bureaus has their own scoring system that helps determine a company’s ability to make payments, but each uses a different focus to generate their score.
- Dun & Bradstreet (D&B) focuses on the company’s payment history on loans, business credit scores, lines of credit, and other debts using their PAYDEX score (1–100). Unlike the other two bureaus, D&B requires a D-U-N-S Number to start a file.
- Experian Business uses their “Intelliscore Plus” system with ratings from 0 – 100 and is used to predict the likelihood of a borrower being delinquent in making payments. It is more common for small and mid-sized business credit checks, as well as startups for smaller amounts of credit.
- Equifax Small Business uses data from the Small Business Finance Exchange (SBFE) and other business scoring models to generate their score (101 – 992) based on payment trends, debts owed, credit history, public records, risk scores, and information like company size, age, and industry. This can then be compared against other similar types of businesses and peers. The focus of this number is to measure the borrower’s financial stability and their likelihood of being able to make payments.
While each financier, lender, or leasing company will pick their own bureau when evaluating you, or they may use multiple, knowing what the three bureaus main focus is can give a borrower an idea of which one the lender will use. Knowing which bureau a lender uses gives the borrower an advantage.
If the borrower is late making payments to a vendor, and that vendor does not report a delinquency to Experian Business, the borrower’s business credit score won’t have the delinquent payment work against them when applying for a loan or business credit card because it is not reported to Experian Business. It could be reported to Equifax Small Business instead, so there’s not as much for the borrower to worry about.
Every company that has any form of debt, lease, or financing will likely have a business credit score. Knowing yours is going to help you know where you stand alongside your peers and how creditworthy you may appear when you apply for financing, leasing, trade credit, or are being evaluated by third parties that want to work with you.
If you’re curious about improving, maintaining, or what impacts your company’s business credit score, we can help. Below you’ll learn about what and how the score is impacted, the two options to request yours, and then some tips on ways to raise your number.
The Way the Score is Calculated
A business credit score is calculated using data reported to the business credit bureaus about payments, debts, and credit accounts to come up with a number that shows how creditworthy the business is. The number can be a combination of:
- Debts and balances on business loans, lines of credit, and business credit cards.
- Payments being made on financed and leased vehicles, equipment, and machinery.
- Vendor and supplier accounts including payments owed on net 30/60/90.
- Corporate memberships and software subscriptions with monthly or annual payments.
- Liens including taxes, UCC filings, and debts reported to collection agencies.
- Any other type of financial debts or payments that a vendor, supplier, leaser, or financier reports to one or all three of the business credit bureaus.
While you are able to get a free copy of your personal credit report and score, unless you have a corporate membership that includes a free business credit score check, you’ll need to pay for a full report. If you’re only curious about your number, do a soft pull instead of a hard pull.
Soft and Hard Pulls
There are two types of inquiries made with business credit bureaus about business credit scores and they are called soft pulls and hard pulls.
- Soft pulls (soft inquiries) do not impact a business credit score because the business owner does not have to agree to them, meaning there is no signature on an application and no permission granted to run the report. Soft pulls provide a high-level overview of the company’s creditworthiness and are used by business owners to get a general idea of how they’re doing, or by third parties to send pre-approved offers or credit and financial repair services.
- Hard pulls (hard inquiries) must be signed off by the company being evaluated as they have a temporary negative impact on the business’s credit rating and they give all of the details reported to the business credit bureau. This is used by a company evaluating if they should or should not loan, lease, or work with the business that is applying with them.
Some companies that do a soft pull, like us, will ask for the customer’s permission before pulling it.
Business credit scores can impact who wants to work with you, and when you’ll need to do some work to improve yours. And getting a better business credit score may be easier than you think.
Ways to Improve Your Business Credit Score
To improve your business credit score, you’ll want to do a mix of these three things.
- Reduce the debts you’re currently paying on.
- Have vendors that you make regular payments to and report the payments to the bureaus.
- Clear any debts that have been paid off but are still listed off of your business credit report.
Your score is a mix of the above, and any of these things can help improve your numbers. Actionable ways to start include:
- Improving your credit utilization ratio (a measure of how much available credit you’re using) by getting a larger line of revolving credit or reducing the debts owed on the accounts. This is even recommended by Experian, so it is one of the first things to look at doing.
- Paying off as many reported debts as possible, or lowering them with curtailments on large or small business loans, lump sums on business credit cards, and clearing balances on business lines of credit.
- Opening a new revolving credit account like a business line of credit or business credit card instead of increasing limits will likely have a short-term negative impact on your score, but making regular on-time payments will show fiscal responsibility if the on-time payments are being reported in.
- If you have positive cash flow and make immediate payments to suppliers and vendors, see if they’ll allow net 30 or net 60 payments, and ask if they will report the on-time payments to the bureaus.
- Get a copy of your business credit report and look for any tradelines (the line items on the report) that show debts you’ve already cleared. Then contact the vendor or lender and ask them to have it removed. If that fails, reach out to the bureau and submit a request to have it removed.
- Automate any payments that you sometimes forget to pay on time to help prevent the missed payment from getting reported to the bureau.
Your business credit score is one of the best ways to show your creditworthiness along with financial statements and business history. When you have a good business credit score, you’re more likely to get approved for financing or leases with better rates. If your business credit score is poor, you’ll have a harder time getting approved for them, or you may get less than ideal terms.
National Funding does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
