Understanding Your Business Credit Score

A consumer credit score is different than a business credit score, and if you own a business, you may want to become familiar with it because it can greatly impact your business. It not only helps you obtain better loan terms, but it also helps you apply for loans and credit cards more easily.

Defining a Business Credit Score

The business credit score, also known as the commercial credit score, is much like your personal FICO score except it uses your business’ credit history to determine your company’s risk factor. That is, your likelihood of missing payments, making late payments, or becoming severely delinquent. Your “credit-worthiness” score is important to anyone that extends credit, including inventory suppliers.

How Business Credit Scores are Determined

Companies use data from your business to predict delinquencies that they can predicate a credit score upon, but unlike the FICO score, the business score uses different information to calculate the score depending on the company issuing the report. The three leading reporting firms are Equifax, Dun & Bradstreet, and Experian. Here are just some of the information that may be used in calculating your business’ score:

  • Payment history and delinquency information
  • Collection, bankruptcy, and lien information
  • Payment status to date
  • Amount of credit available vs. amount utilized
  • Trade relationships
  • Business age, type, and number of employees
  • Number of inquiries into business dealings

Each of the reporting agencies uniquely calculates their scores, but they all base it on parts of the above information. And, just as you want your FICO score to be as high as possible, the same is true of your business credit score because lenders believe the higher the score, the less risk they have in lending to you. Furthermore, just as your personal credit score can contain mistakenly reported information, so can your business score. That is why it is important to review all three agency reports and if you find a mistake, address it with them as soon as possible.

Build Business Credit Scores with Good Business Habits

Just as prompt payments lead to good credit scores in your personal life, making payments on time is thought to be one of the biggest contributing factors to improving your business scores. By keeping payments timely, you protect your credit and help it grow so that when you need to borrow money for financial safety, you’ll have little to no problem obtaining a loan. You should also avoid using all available credit, and instead let it sit as a buffer. Having the credit and not using it can also help raise your business credit scores.

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